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As filed with the Securities and Exchange Commission on November 24, 2021.
Registration
No. 333-            
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
AppLovin Corporation
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
7370
 
45-3264542
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
AppLovin Corporation
1100 Page Mill Road
Palo Alto, California 94304
(800) 839-9646
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
 
Adam Foroughi
Co-Founder,
Chief Executive Officer, and Chairperson
Herald Chen
President and Chief Financial Officer
1100 Page Mill Road
Palo Alto, California 94304
(800) 839-9646
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
Copies to:
Rezwan D. Pavri
Lisa L. Stimmell
Andrew T. Hill
Lang Liu
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
(650)
493-9300
 
Victoria Valenzuela
Lonnie Huang
AppLovin Corporation
1100 Page Mill Road
Palo Alto, California 94304
(800) 839-9646
 
Michael T. Esquivel
Ran D.
Ben-Tzur
James D. Evans
Jennifer J. Hitchcock
Fenwick & West LLP
801 California Street
Mountain View, California 94041
(650)
988-8500
 
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
        
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. 
 
 
CALCULATION OF REGISTRATION FEE
 
 
Title of Each Class of
Securities to be Registered
 
Proposed
Maximum
Aggregate
Offering Price
(1)(2)
 
Amount of
Registration Fee
Class A common stock, par value $0.00003 per share
 
$100,000,000
 
$9,270
 
 
(1)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.
(2)
Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.
 
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant will file a further amendment which specifically states that this registration statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement will become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and neither we nor the selling stockholders are soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PROSPECTUS (Subject to Completion)
Issued                     , 2021
                     Shares
 
 
Class A common stock
 
 
The selling stockholders identified in this prospectus are selling                      shares of Class A common stock. We will not receive any proceeds from the sale of shares of our Class A common stock by the selling stockholders.
We have three classes of authorized common stock, Class A common stock, Class B common stock, and Class C common stock. The rights of the holders of Class A common stock, Class B common stock, and Class C common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 20 votes per share and is convertible at any time into one share of Class A common stock. Shares of Class C common stock have no voting rights, except as otherwise required by law, and will convert into Class A common stock, on a share-for-share basis, following the conversion or exchange of all outstanding shares of Class B common stock into shares of Class A common stock and upon the date or time specified by the holders of a majority of the outstanding shares of Class A common stock voting as a separate class. No shares of Class C common stock are issued and outstanding.
All shares of Class B common stock are held by Adam Foroughi, our co-founder, Chief Executive Officer, and the Chairperson of our board of directors; Herald Chen, our President and Chief Financial Officer, and a member of our board of directors; and KKR Denali Holdings L.P. (collectively with certain affiliates, the Class B Stockholders). Upon completion of this offering and related transactions, the Class B Stockholders will collectively hold                     % of the voting power of our outstanding capital stock. The Class B Stockholders have entered into a voting agreement whereby all Class B common stock held by the Class B Stockholders and their respective permitted entities and permitted transferees will be voted as determined by two of Mr. Foroughi, Mr. Chen, and KKR Denali (one of which must be Mr. Foroughi). As a result, the Class B Stockholders will collectively be able to determine or significantly influence any action requiring the approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction.
Our Class A common stock is listed on the Nasdaq Global Select Market under the symbol “APP”. On                     , 2021, the last sale price of our Class A common stock as reported on the Nasdaq Global Select Market was $                     per share.
We are a “controlled company” within the meaning of the Nasdaq corporate governance requirements. See the sections titled “Management” and “Principal and Selling Stockholders” for additional information.
 
 
Investing in our Class A common stock involves risks. See “Risk Factors” beginning on page 17 to read about factors you should consider before buying shares of our Class A common stock.
 
 
PRICE $         A SHARE
 
 
 
    
 
Price to
Public
 
 
    
 
Underwriting Discounts and
Commissions
(1)
 
 
    
 
Proceeds to Selling
Stockholders
 
 
Per Share
    
$
 
 
    
$
 
 
    
$
 
 
Total
    
$
                     
 
    
$
                                             
 
    
$
                     
 
 
(1) We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See the section titled “Underwriters” for a description of the compensation payable to the underwriters.
The selling stockholders have granted the underwriters the right to purchase up to                      additional shares of our Class A common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares to purchasers on                     , 2021.
 
 
 
J.P. Morgan
 
BofA Securities
 
Citigroup
Prospectus dated                     , 2021
 

TABLE OF CONTENTS
 
 
 
Neither we nor the selling stockholders, nor any of the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. Neither we nor the selling stockholders, nor any of the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The selling stockholders are offering to sell, and seeking offers to buy, our Class A common stock only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date, regardless of the time of delivery of this prospectus or of any sale of our Class A common stock.
For investors outside the United States: Neither we nor the selling stockholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outside the United States.


PROSPECTUS SUMMARY
This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes, and our unaudited pro forma condensed combined statement of operations included elsewhere in this prospectus before making an investment decision. Unless the context otherwise requires, the terms “AppLovin,” “the company,” “we,” “us,” and “our” in this prospectus refer to AppLovin Corporation and its consolidated subsidiaries, and references to our “common stock” include our Class A common stock, Class B common stock, and Class C common stock.
APPLOVIN CORPORATION
Overview
Our mission is to grow the mobile app ecosystem by enabling the success of mobile app developers.
Our software solutions provide advanced tools for mobile app developers to grow their businesses by automating and optimizing the marketing and monetization of their apps. Since inception, our platform has driven over eight billion mobile app installs for mobile app developers. Our software, coupled with our deep industry knowledge and expertise, has allowed us to rapidly scale a successful and diversified portfolio of owned mobile apps. We have also accelerated our market penetration through an active acquisition and partnership strategy. Our scaled and integrated business model sits at the nexus of the mobile app ecosystem, which creates a durable competitive advantage that has fueled our clients’ success and our strong growth.
Over the past two decades, mobile apps have become integral to our lives. Mobile apps offer a wide array of applications, such as allowing users to seamlessly share ideas, make purchases, monitor health, and access entertainment. Based on data from IDC, we estimate our total market opportunity to be $189 billion in 2020, growing to $283 billion in 2024, or a 10.6% compound annual growth rate (CAGR). Growth of the mobile app ecosystem benefits mobile app users, but makes it harder for mobile app developers, and particularly independent (indie) developers, to scale and succeed in a crowded market. Most developers lack access to the marketing, monetization, and data analytics tools required to stand out among the more than 4.8 million mobile apps available on the Apple App Store and Google Play Store, according to Statista, or attract sufficient numbers of mobile app users to create and sustain a successful long-term business. Underscoring how difficult it is to create a successful mobile app, SensorTower estimates that 80% of all mobile app downloads were generated by 1% of total developers across both Apple App Store and Google Play Store in the third quarter of 2019.
The marketing and monetization challenges faced by mobile app developers are particularly acute for developers of mobile games, which is one of the largest and fastest-growing segments within the mobile app ecosystem. According to IDC, there are more than 2 billion mobile gamers worldwide—and, according to Statista, there are more than 1.3 million mobile gaming apps on the Apple App Store and Google Play Store. Mobile gaming accounts for 39% of worldwide app downloads and for 72% of all app store consumer spend by value, according to Sensor Tower.
 
1

AppLovin is critical to the success of mobile app developers, in particular mobile game developers, solving key marketing and monetization challenges. Through our technologies and scaled distribution, developers are able to manage, optimize, and analyze their marketing investments, and improve the monetization of their apps. The key elements of our solutions are delivered through the AppLovin Core Technologies and AppLovin Software. In 2018, given an opportunity to scale our own apps using our Software, insights, and expertise in the mobile app ecosystem, we launched our first party content strategy, AppLovin Apps. Today, our Apps consist of a globally diversified portfolio of over 350
free-to-play
mobile games across five genres, run by eighteen studios, including studios that we own (Owned Studios), and others that we partner with (Partner Studios).
The combination of our Core Technologies, Software Platform, and Apps forms a strategic flywheel that drives growth across our business and furthers our competitive advantages. As more developers use our Software Platform to market and monetize their mobile apps, we gain access to more users and more user engagement further strengthening our scaled distribution. As our distribution grows, we gain better insights for the recommendation engine in our Core Technologies, which then further enhances our Software. This continuously improving flywheel helps developers, including our own, to create and sustain successful businesses, growing both our own business and the mobile app ecosystem.
We accelerate our capabilities and enhance our strategic position in the mobile app ecosystem by actively pursuing acquisitions and partnerships for new technologies and apps. Insights that we derive from our strategic position and flywheel allow us to proactively identify attractive acquisition and partnership opportunities across the mobile app ecosystem. From the beginning of 2018 through September 30, 2021, we have invested over $2.5 billion across 26 strategic acquisitions and partnerships with app studios, games, and software platforms. In the case of new apps added to our portfolio, we are able to deploy our Software and expertise to accelerate revenue growth, enabling us to generate strong returns on investment. Strategic acquisitions and partnerships will continue to be a part of our growth strategy going forward. For example, in April 2021, we acquired adjust GmbH (Adjust), a leading mobile app attribution, measurement, and analytics company in Germany and in October 2021, we entered into an agreement to acquire the MoPub business from Twitter, Inc.
Our focus on building market-leading technology, coupled with our unique approach to developing and growing our Apps portfolio, has produced a business model characterized by rapid growth and strong cash flow generation. For the nine months ended September 30, 2021, our revenue grew 112% year-over-year, from $941.2 million for the nine months ended September 30, 2020 to $2.0 billion in the comparative period in 2021. We generated a net income of $3.9 million for the nine months ended September 30, 2021, and a net loss of $107.0 million in the comparative period in 2020. We generated Adjusted EBITDA of $505.5 million and $207.6 million for the nine months ended September 30, 2021 and 2020, respectively. Additionally, we have generated strong cash flows, with net cash provided by operating activities of $276.8 million and $122.7 million in the nine months ended September 30, 2021 and 2020, respectively. This has allowed us to reinvest in our expansion and growth and consummate strategic acquisitions and partnerships. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Adjusted EBITDA” for a description of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with generally accepted accounting principles in the United States (GAAP).
 
2

Industry Background
Key Trends within the Mobile App Ecosystem
 
   
The mobile app ecosystem
is growing rapidly and is increasingly defining how we interact with the world.
Based on data from IDC, we estimate that our market opportunity within the mobile app ecosystem will grow from $189 billion in 2020 to $283 billion in 2024, or a 10.6% CAGR.
 
   
The proliferation of accessible and affordable advanced development tools has led to lower cost and shorter development times for new apps
. A broad selection of high quality, easy to use, commoditized development kits has decreased the time, capital, and expertise required to make an app.
 
   
Mobile gaming has become one of the largest and fastest-growing sectors within the mobile app ecosystem.
Mobile gaming accounts for 39% of worldwide app downloads and for 72% of all app store consumer spend by value, according to Sensor Tower.
Key Challenges for Developers
Today’s app developer journey has three key steps – make, market, and monetize. The ‘make’ step has never been easier, but developers still face key challenges in marketing and monetizing their apps.
 
   
The abundance of apps today creates a discovery and marketing challenge for mobile app developers.
The ease of making apps has created a highly fragmented market with over 4.8 million mobile apps available through the Apple App Store and Google Play Store, according to Statista. Even after a user downloads an app, for the average consumer in the United States that app is now just one of the nearly 100 apps on the average smartphone, according to App Annie. As a result, developers must overcome both a crowded marketplace and home screen to successfully market and monetize their apps, and this is especially difficult for indie developers.
 
   
Many developers lack access to marketing and monetization tools required to build a successful business in the mobile app ecosystem.
Most mobile apps are free to install and many rely on
in-game
advertising and in-app purchases (IAPs) for monetization. To be successful, a developer’s app must not just be discovered but also generate user engagement to effectively sell ad inventory or create compelling content for IAPs.
Our Market Opportunity
Based on data from IDC, we estimate our total market opportunity in the mobile app ecosystem to be $189 billion. We calculated this estimate by aggregating worldwide total in-app advertising revenue of $101 billion (including gaming and
non-gaming
in-app display, video, and other advertising, but excluding in-app search advertising) and worldwide direct game spending of $88 billion for 2020.
How We Grow the Mobile App Ecosystem
We have built and invested in our Core Technologies and Software Platform, which expand the mobile app ecosystem by solving key developer growth challenges. We deliver value to mobile app developers by helping scale their businesses and maximize their revenue through our marketing and monetization technologies and expertise. Our Core Technologies and Software Platform combine marketing, monetization, and analytics into a single unified technology stack.
 
   
AppLovin Core Technologies
are our foundational technology infrastructure that powers our Software Platform. Our Core Technologies consist of our AXON machine-learning
 
3

 
recommendation engine, our App Graph data management layer, and our elastic cloud infrastructure. Our Core Technologies are robust, having processed 5.9 petabytes of data per day on average, as many as 4 trillion predictions per day, and up to 29.6 trillion events per day in September 2021, while remaining flexible enough to rapidly adjust to our customers’ evolving needs. Our App Graph stores and manages anonymized data from hundreds of millions of mobile devices we reach every day, which our AXON engine then leverages to better predict and match each user to relevant advertising content.
 
   
AppLovin Software Platform
is a comprehensive suite of tools for developers to get their mobile apps discovered and downloaded by the right users, optimize return on marketing spend, and maximize monetization of engagement. Our Software Platform reaches an audience of over 478 million users per day.
1
Our Software Platform is comprised of four solutions:
 
   
AppDiscovery
is our marketing software solution, which matches advertiser demand with publisher supply through auctions at vast scale and microsecond-level speeds, peaking at 5.6 million requests processed per second in September 2021. AppDiscovery is powered by our AXON machine-learning recommendation engine with predictive algorithms that enable developers to match their apps to users that are more likely to download them.
 
   
Adjust
is an analytics platform that helps marketers grow their mobile apps with solutions for measuring and optimizing campaigns and protecting user data. Adjust powers thousands of apps with built-in intelligence and automation, backed by responsive global customer support.
 
   
MAX
is our
in-app
bidding software that
optimizes the value of an app’s advertising inventory by running a real-time competitive auction, driving more competition and higher returns for publishers.
 
   
Compass
is our analytics software tool within MAX which gives developers the testing capabilities, insights, and intelligence needed to stay competitive and manage profitability.
We have also developed and invested in our AppLovin Apps. Our Apps consist of a globally diversified portfolio of over 350
free-to-play
mobile games run by eighteen studios with a deep bench of talented developers. These Apps are accessed by nearly 37 million users every day.
1
Our diversified portfolio covers five gaming genres, the most frequent of which is casual games, and appeals to a broad global audience across different ages, genders, and locations. Our Owned Studios and Partner Studios utilize our Software Platform and other vendors to market and monetize our Apps. When using our Software Platform, our Apps have an economic advantage, which benefits our business as a whole.
Our Strategic Flywheel
The mutually reinforcing combination of our Software Platform’s scaled distribution, our Apps’ first-party content, and our Core Technologies’ recommendation engine creates a powerful flywheel effect that enhances each component and importantly improves our overall strategic position and capabilities. As our Software Platform improves and is able to deliver more effective ads to more relevant users, more developers use and integrate their apps with our Software Platform. With growth in the number of users on and engagement with our Apps and third-party apps, our App Graph gains more insights and data to feed our Core Technologies, including our AXON machine-learning recommendation engine.
 
1
 
See the section titled “Business” for information on how we calculate this figure.
 
4

This enables AXON to make more relevant recommendations for each user, enhancing the effectiveness of our Software Platform in real-time. Improvements in our Software Platform lead to more developer demand, restarting the virtuous cycle of our strategic flywheel.
 
 
Higher monetization and more users more users served relevant ads more likely to download more users download relevant apps more usage and data better insights and more engagement appdiscovery marketing max monetization applovin apps & client apps infrastructure app graph axon
Our Strategic Acquisitions and Partnerships
We accelerate our technical capabilities, strategic positioning, and growth through strategic acquisitions and partnerships. We have developed a proven and repeatable process for acquiring highly sophisticated technology that enhances our Software Platform and for selecting and scaling our Apps global portfolio. Our acquisitions and partnerships include investments in software, such as our acquisitions of Adjust, MAX Advertising Systems, Inc. (MAX) and SafeDK Mobile Ltd. (SafeDK), and game studios, such as our acquisition of PeopleFun, Inc. (PeopleFun) and partnership with Belka Games.
From the beginning of 2018 through September 30, 2021, we have invested over $2.5 billion across 26 strategic acquisitions and partnerships.
Benefits to Mobile App Developers
We enable mobile app developers to:
 
   
Reach and attract users at scale.
Our Software Platform reaches over 478 million users per day, enabling mobile app developers to target and find the right users for their apps worldwide. Developers are able to set their user acquisition and revenue goals to target the most relevant, highest value users.
 
   
Maximize monetization of engagement.
Developers use our Software Platform to generate incremental revenue by maximizing the monetization of their mobile app ad inventory. Our
 
5

 
tools operate at nearly instantaneous speeds and at vast scale to enhance monetization for developers while preserving the end user experience.
 
   
Leverage proprietary data and insights.
Developers benefit from accessing comprehensive real-time insights through our customized user dashboards, helping them optimize campaigns, improve user engagement, and manage their return on investment.
 
 
   
Automate time consuming and manual processes.
Our Software Platform automates marketing and monetization, allowing developers to focus on improving their apps rather than managing complex
go-to-market
processes manually.
 
   
Seamlessly adapt to industry innovation.
Our cloud-based Core Technologies and Software Platform are continuously updated as the mobile app ecosystem evolves. Developers on our Software Platform benefit from this ongoing advancement and optimization, and are able to rapidly adapt to industry changes in marketing and monetization without losing focus on mobile app creation.
Our Strengths
 
   
Unique and improving strategic position.
Our competitive advantages, overall growth, and strong financial profile are a direct result of our integrated portfolio and strategic flywheel.
We leverage insights across our flywheel to optimize our strategic position and business, in particular with regard to the allocation of development resources and investments.
 
   
Proven and optimized mobile app discovery and monetization technologies.
For almost a decade, we have been improving our Core Technologies and Software Platform. Powered by our AXON machine-learning recommendation engine and our App Graph, we leverage deep insights and technical expertise to create powerful software platforms and a significant competitive advantage. We automate marketing and monetization, freeing developers to focus on what they do best—app development.
 
   
An advantaged approach to the mobile apps market.
Our Apps leverage the strength of our Core Technologies and Software Platform and expertise to achieve strong discovery and monetization, leading to a differentiated approach and business model. This advantaged approach to the mobile apps market provides the opportunity to expand into other mobile app sectors.
 
   
Highly accretive approach to strategic acquisitions and partnerships.
We have a proven and repeatable playbook approach to our strategic acquisitions and partnerships. The mobile app ecosystem remains highly fragmented and provides an ongoing growth opportunity for us.
 
   
Strong business model to drive rapid growth and cash flow.
Based on our integrated assets and scale, we have a strong business model that has produced rapid revenue growth and an attractive margin profile. We are able to reinvest this cash flow to fuel sustainable growth.
 
   
Founder-led
business, with a proven and experienced team to execute.
Our
co-founder,
CEO, and Chairperson, Adam Foroughi, leads a tenured management team with significant experience in the mobile app industry and scaling successful businesses.
 
6

Our Strategy for Growth
We have a comprehensive strategy to continue our growth and further enhance our market position in the mobile app ecosystem.
 
   
Existing market expansion
. We have an attractive market opportunity within our growing mobile app segments and will continue to invest across our Core Technologies, Software Platform, and Apps:
 
   
Enhance and extend machine-learning platform technologies.
 
   
Expand distribution reach and software capabilities.
 
   
Grow AppLovin Apps.
 
   
New market extensions
.
We believe our technology and expertise are applicable to other market segments and geographies that we do not currently address:
 
   
Expand into other mobile app segments and industries.
 
   
Geographic expansion and industry partnerships.
 
   
Other performance marketing and yield marketing categories.
 
   
Pursue accretive strategic acquisitions and partnerships.
We have a deep pipeline of software and app investment opportunities which we will continue to pursue.
Our Capital Structure
We have three classes of common stock. Our Class A common stock, which is the stock being offered by the selling stockholders by means of this prospectus, has one vote per share, our Class B common stock has 20 votes per share, and our Class C common stock has no voting rights, except as otherwise required by law. Adam Foroughi, our co-founder, CEO, and Chairperson; Herald Chen, our President and Chief Financial Officer, and a member of our board of directors; and KKR Denali Holdings L.P. (KKR Denali) (collectively with certain affiliates, the Class B Stockholders) together hold all of the issued and outstanding shares of our Class B common stock. Substantially concurrently with the completion of this offering, KKR Denali will voluntarily convert an additional number of shares of our Class B common stock that it holds into an equivalent number of shares of Class A common stock (the KKR Denali Stock Conversion) such that, after giving effect to this offering and such voluntary conversion, the shares of Class A common stock and Class B common stock held by KKR Denali will provide it with 45.0% of the voting power of our outstanding capital stock. Accordingly, upon the closing of this offering and related transactions, the Class B Stockholders will collectively hold                     % of the voting power of our outstanding capital stock in the aggregate, which voting power may increase over time to the extent the Class B Stockholders exercise stock options outstanding at the time of the completion of this offering and exchange such shares for Class B common stock. If all such stock options held by the Class B Stockholders had been exercised and exchanged for shares of Class B common stock and assuming that the KKR Denali Stock Conversion has been effected as of the date of the completion of this offering and related transactions, our Class B Stockholders would collectively hold                     % of the voting power of our outstanding capital stock. The Class B Stockholders have entered into a voting agreement (the Voting Agreement) whereby all Class B common stock held by the Class B Stockholders and their respective permitted entities and permitted transferees will be voted as determined by two of Mr. Foroughi, Mr. Chen, and KKR Denali (one of which must be Mr. Foroughi). As a result, the Class B Stockholders will collectively be able to determine or significantly influence any action requiring the approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction.
 
7

No shares of our Class C common stock, which entitle the holder to zero votes per share, are issued and outstanding and we have no current plans to issue shares of Class C common stock. These shares will be available to be used in the future to further strategic initiatives, such as financings or acquisitions, or issue future equity awards to our service providers. Because the shares of Class C common stock have no voting rights (except as otherwise required by law), the issuance of such shares will not result in further dilution to the voting power held by the Class B Stockholders.
The multi-class structure of our common stock is intended to ensure that, for the foreseeable future, the Class B Stockholders continue to control or significantly influence the governance of the company, which we believe will permit us to continue to prioritize our long-term goals rather than short-term results, to enhance the likelihood of stability in the composition of our board of directors and its policies, and to discourage certain types of transactions that may involve an actual or threatened acquisition of the company. See the sections titled “Principal and Selling Stockholders” and “Description of Capital Stock” for additional information.
Recent Developments
Definitive Agreement to Acquire MoPub
On October 6, 2021, we entered into a definitive agreement to acquire from Twitter, Inc. the MoPub business for approximately $1.05 billion. The closing of the transaction is expected to occur in early 2022 and is subject to customary conditions and regulatory approvals. We plan to integrate MoPub’s reach and product features into our existing Software Platform to better maximize revenue growth and improve efficiencies for our combined customers.
Term Loans and Amendment to Credit Agreement
On October 25, 2021, we entered into Amendment No. 6 (Amendment No. 6) to that certain Credit Agreement, dated as of August 15, 2018, by and among us, as borrower, Bank of America, N.A., as administrative agent and collateral agent, and the other parties thereto, as amended by Amendment No. 1 to the Credit Agreement, dated as of April 23, 2019, Amendment No. 2 to the Credit Agreement, dated as of April 27, 2020, Amendment No. 3 to the Credit Agreement, dated as of May 6, 2020, Amendment No. 4 to the Credit Agreement, dated as of October 27, 2020 and Amendment No. 5 to the Credit Agreement, dated as of February 12, 2021 (the Credit Agreement; and as amended by Amendment No. 6, the Amended Credit Agreement).
Pursuant to Amendment No. 6 and the Amended Credit Agreement, certain additional lenders agreed to provide incremental loans in an aggregate amount of $1.5 billion (such incremental loans, the Amendment No. 6 New Term Loans). The Amendment No. 6 New Term Loans have (a) a maturity date of October 25, 2028 (or if not a business day, the immediately preceding business day), (b) a floor on LIBOR Loans (as defined in the Amended Credit Agreement) of 50 basis points, and (c) an applicable margin for LIBOR Loans equal to 3.00% (or 2.00% for ABR Loans (as defined in the Amended Credit Agreement)), in each case, subject to and in accordance with the terms and conditions of the Amended Credit Agreement. Except as set forth in Amendment No. 6 and the Amended Credit Agreement, the other terms and conditions of the Amendment No. 6 New Term Loans are consistent with the terms and conditions of the term loans outstanding immediately prior to the effectiveness of Amendment No. 6.
 
8

Risk Factors Summary
Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include the following:
 
   
We have a limited operating history, especially with respect to our Apps, which makes it difficult to evaluate our current business and future performance and the risks we may encounter.
 
   
Our results of operations are likely to fluctuate from
period-to-period,
which could cause the market price of our Class A common stock to decline.
 
   
The mobile app ecosystem is intensely competitive. If business clients or users prefer our competitors’ products or services over our own, our business, financial condition, and results of operations could be adversely affected.
 
   
The mobile app ecosystem is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business, financial condition, and results of operations could be adversely affected.
 
   
The failure to attract new business clients, the loss of clients, or a reduction in spending by these clients could adversely affect our business, financial condition, and results of operations.
 
   
If we are unable to launch or acquire new Apps and successfully monetize them, or continue to improve the experience and monetization of our existing Apps, our business, financial condition, and results of operations could be adversely affected.
 
   
If we fail to retain existing users or add new users cost-effectively, or if our users decrease their level of engagement with Apps, our business, financial condition, and results of operations could be adversely affected.
 
   
We have experienced significant growth through strategic acquisitions and partnerships, and we face risks related to the integration of such acquisitions and the management of such growth.
 
   
We plan to continue to expand and diversify our operations through strategic acquisitions and partnerships. We face a number of risks related to these transactions.
 
   
We rely on third-party platforms to distribute our Apps and collect revenue, and if our ability to do so is harmed, or such third-party platforms change their policies in such a way that restricts our business, increases our expenses, or limits the information we derive from our Apps, our business, financial condition, and results of operations could be adversely affected.
 
   
The multi-class structure of our common stock and the Voting Agreement among the Class B Stockholders have the effect of concentrating voting power with the Class B Stockholders. This will limit your ability to influence the outcome of matters submitted to our stockholders for approval, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction.
 
   
We are considered a “controlled company” within the meaning of the Nasdaq corporate governance requirements, and, as a result, we qualify for, and currently rely on, exemptions from certain corporate governance requirements.
Channels for Disclosure of Information
We announce material information to the public through filings with the Securities and Exchange Commission (the SEC), the investor relations page on our website, press releases, public conference calls, webcasts, and our corporate blog at blog.applovin.com.
 
9

The information disclosed by the foregoing channels could be deemed to be material information. As such, we encourage investors, the media, and others to follow the channels listed above and to review the information disclosed through such channels.
Any updates to the list of disclosure channels through which we announce information will be posted on the investor relations page on our website.
Controlled Company Status
Our Class B Stockholders control more than 50% of the voting power of our common stock and we are considered a “controlled company” under the Nasdaq corporate governance requirements. As such, we are permitted to opt out of compliance with certain Nasdaq corporate governance requirements and we currently rely on certain of such exemptions. Accordingly, stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements. See the sections titled “Risk Factors—We are considered a “controlled company” within the meaning of the Nasdaq corporate governance requirements, and, as a result, we qualify for, and currently rely on, exemptions from certain corporate governance requirements,” “Management,” and “Principal and Selling Stockholders” for additional information.
Corporate Information
We were incorporated under the laws of the state of Delaware in July 2011. Our principal executive offices are located at 1100 Page Mill Road, Palo Alto, California 94304, and our telephone number is (800) 839-9646. Our website address is www.applovin.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only. You should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our Class A common stock.
“AppLovin,” our logo, and our other registered or common law trademarks, service marks, or trade names appearing in this prospectus are the property of AppLovin Corporation. Other trademarks and trade names referred to in this prospectus are the property of their respective owners.
 
10


THE OFFERING
 
Class A common stock offered by the selling stockholders
  

                     shares
   
Class A common stock to be outstanding after this offering and related transactions
  
                     shares
   
Class B common stock to be outstanding after this offering and related transactions
  


                     shares
   
Class C common stock to be outstanding after this offering and related transactions
  


None
   
Class A, Class B, and Class C common stock to be outstanding after this offering and related transactions
  
                     shares
   
Option to purchase additional shares
  
The selling stockholders have granted the underwriters an option to purchase an additional                      shares of Class A common stock. Any shares of Class A common stock purchased by the underwriters from the selling stockholders pursuant to this option shall reduce the number of shares of Class B common stock and increase the number of shares of Class A common stock outstanding after this offering.
   
Use of proceeds
  
The selling stockholders will receive all net proceeds from the sale of shares of Class A common stock in this offering and we will not receive any proceeds from this offering. We will, however, bear the costs associated with the sale of shares by the selling stockholders, other than underwriting discounts and commissions.
    
 
See the sections titled “Use of Proceeds,” “Principal and Selling Stockholders,” and “Underwriters” for additional information.
   
Voting rights
  
Shares of our Class A common stock are entitled to one vote per share.
   
    
Shares of our Class B common stock are entitled to 20 votes per share.
   
    
Shares of our Class C common stock have no voting rights, except as otherwise required by law.
   
    
Holders of our Class A common stock and Class B common stock will generally vote together as a single class, unless otherwise required by law or our amended and restated certificate of incorporation. Upon the closing of this offering and related transactions, the Class B Stockholders will collectively hold approximately                     % of the voting power of our outstanding capital stock in the aggregate. The Class B Stockholders have entered into the Voting Agreement whereby all Class B
 
11

    
common stock held by the Class B Stockholders and their respective permitted entities and permitted transferees will be voted as determined by two of Mr. Foroughi, Mr. Chen, and KKR Denali (one of which must be Mr. Foroughi). As a result, the Class B Stockholders will collectively be able to determine or significantly influence any action requiring the approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and bylaws, and the approval of any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction. See the sections titled “Principal and Selling Stockholders” and “Description of Capital Stock” for additional information.
   
Controlled company
  
We are considered a “controlled company” within the meaning of the Nasdaq corporate governance requirements. See the sections titled “Management—Director Independence and Controlled Company Exemption” and “Principal and Selling Stockholders” for additional information.
   
Nasdaq trading symbol
  
“APP”
The number of shares of our Class A common stock, Class B common stock, and Class C common stock that will be outstanding after this offering and related transactions is based on 225,833,513 shares of our Class A common stock, 147,807,622 shares of our Class B common stock, and no shares of our Class C common stock outstanding as of September 30, 2021.
The shares of our Class A common stock and Class B common stock outstanding as of September 30, 2021 exclude the following:
 
   
16,689,042 shares of our Class A common stock issuable upon the exercise of options to purchase shares of our Class A common stock outstanding as of September 30, 2021, with a weighted-average exercise price of $6.55 per share;
 
   
195,000 shares of our Class A common stock issuable upon the exercise of a warrant to purchase Class A common stock outstanding as of September 30, 2021, with an exercise price of $26.67 per share;
 
   
7,222,536 of our Class A common stock issuable upon the vesting and settlement of restricted stock units (RSUs) outstanding as of September 30, 2021;
 
   
324,156 shares of our Class A common stock issued upon conversion of a convertible security in October 2021; and
 
   
44,994,361 shares of our Class A common stock reserved for future issuance under our equity compensation plans as of September 30, 2021, consisting of:
 
   
37,163,984 shares of our Class A common stock reserved for future issuance under our 2021 Equity Incentive Plan (our 2021 Plan);
 
   
30,377 shares of our Class A common stock reserved for future issuance under our 2021 Partner Studio Incentive Plan (our 2021 Partner Plan); and
 
   
7,800,000 shares of our Class A common stock reserved for future issuance under our 2021 Employee Stock Purchase Plan (our ESPP).
 
12

Our 2021 Plan and ESPP each provides for annual automatic increases in the number of shares of our Class A common stock reserved thereunder, and our 2021 Plan also provides for increases to the number of shares of Class A common stock that may be granted thereunder based on shares under our 2011 Equity Incentive Plan (our 2011 Plan) that expire, are tendered to or withheld by us for payment of an exercise price or for satisfying tax withholding obligations, or are forfeited or otherwise repurchased by us. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for additional information.
Pursuant to an equity exchange right agreement entered into between us and Herald Chen (the Equity Award Exchange Agreement), Mr. Chen will have a right (but not an obligation) to require us to exchange any shares of Class A common stock received upon the exercise of options to purchase shares of Class A common stock for an equivalent number of shares of Class B common stock. We refer to this right as the Equity Award Exchange. The Equity Award Exchange applies only to equity awards granted to Mr. Chen prior to the effectiveness of the filing of our amended and restated certificate of incorporation in connection with our initial public offering. There are 2,360,400 shares of our Class A common stock subject to options held by Mr. Chen that are subject to the Equity Award Exchange Agreement and may be exchanged, upon exercise, for an equivalent number of shares of our Class B common stock. In the event that Mr. Chen had exchanged all shares of Class A common stock that he may acquire pursuant to options that he exercises immediately prior to this offering, then the Class B Stockholders would have held approximately                     % of the voting power of our capital stock in the aggregate immediately following the completion of this offering and related transactions.
Except as otherwise indicated, all information in this prospectus:
 
   
gives effect to a 1-to-3 forward stock split, which occurred on May 20, 2020 (the Forward Stock Split) as if it had occurred on the date of such information;
 
   
assumes no exercise of outstanding stock options and warrants, vesting and settlement of RSUs, conversion of convertible securities, or forfeiture of outstanding restricted stock subsequent to September 30, 2021; and
 
   
assumes no exercise by the underwriters of their option to purchase additional shares.
 
13

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables summarize our consolidated financial and other data. We have derived the summary consolidated statements of operations data for 2018, 2019 and 2020 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary consolidated statements of operations data for the nine months ended September 30, 2021 and summary consolidated balance sheets data as of September 30, 2021 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. We have prepared the unaudited condensed consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments that, in our opinion, are necessary to state fairly the information set forth in those consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following summary consolidated financial and other data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes, and our unaudited pro forma condensed combined statement of operations included elsewhere in this prospectus.
Consolidated Statements of Operations Data
 
   
Year Ended December 31,
   
Nine Months Ended
September 30,
 
   
2018
   
2019
   
2020
   
2020
   
2021
 
    (in thousands, except for share and per share amounts)  
Revenue
  $ 483,363     $ 994,104     $ 1,451,086     $ 941,249     $ 1,999,634  
Costs and expenses:
                                       
Cost of revenue
(1)(2)
    53,758       241,274       555,578       357,564       722,966  
Sales and marketing
(1)(2)
    166,799       481,781       627,796       417,000       816,200  
Research and development
(1)
    16,270       44,966       180,652       99,950       246,861  
General and administrative
(1)
    14,854       31,712       66,431       41,256       122,116  
Lease modification and abandonment of leasehold improvements
                7,851       7,851        
Extinguishments of acquisition-related contingent consideration
    (10,763           74,820       74,712        
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total cost and expenses
    240,918       799,733       1,513,128       998,333       1,908,143  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Income (loss) from operations
    242,445       194,371       (62,042     (57,084     91,491  
Other income (expense):
                                       
Interest expense and loss on settlement of debt
    (484,644     (73,955     (77,873     (57,548     (72,796
Other income (expense), net
    1,940       5,818       4,209       5,347       (997
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total other expense
    (482,704     (68,137     (73,664     (52,201     (73,793
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
14

   
Year Ended December 31,
   
Nine Months Ended September 30,
 
   
2018
   
2019
   
2020
   
2020
   
2021
 
    (in thousands, except for share and per share amounts)  
Income (loss) before income taxes
    (240,259     126,234       (135,706     (109,285     17,698  
Provision for (benefit from) income taxes
    19,736       7,194       (9,772     (2,324     13,767  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss)
    (259,995     119,040       (125,934     (106,961     3,931  

                                       
Add: 
Net loss attributable to noncontrolling interest
                747       546       149  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) attributable to AppLovin shareholders
  $ (259,995   $ 119,040     $ (125,187   $ (106,415   $ 4,080  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Less: Income attributable to participating securities
          (42,664                 (568
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) attributable to common stock—Basic
  $ (259,995   $ 76,376     $ (125,187   $ (106,415   $ 3,512  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) attributable to common stock—Diluted
  $ (259,995   $ 76,561     $ (125,187   $ (106,415   $ 3,539  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net income (loss) per share attributable to common stockholders:
(3)
                                       
Basic
  $ (1.37   $ 0.36     $ (0.58   $ (0.50   $ 0.01  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
  $ (1.37   $ 0.36     $ (0.58   $ (0.50   $ 0.01  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Weighted average common shares used to compute net income (loss) per share attributable to common stockholders:
(3)
                                       
Basic
    189,533,630       210,937,147       214,936,545       212,998,263       309,353,304  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Diluted
    189,533,630       212,365,429       214,936,545       212,998,263       327,426,792  
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
 
(1)
Includes stock-based compensation expense as follows:
 
    
Year Ended December 31,
    
Nine Months Ended
September 30,
 
    
2018
    
2019
    
2020
    
2020
    
2021
 
     (in thousands)  
Cost of revenue
   $ 517      $ 124      $ 982      $ 204      $ 1,504  
Sales and marketing
     2,582        1,922        10,668        2,812        8,814  
Research and development
     1,009        5,009        36,852        10,692        40,148  
General and administrative
     1,357        3,167        13,885        5,654        41,362  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total stock-based compensation
   $   5,465      $   10,222      $ 62,387      $ 19,362      $ 91,828  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
15

(2)
Includes amortization expense related to acquired intangibles as follows:
 
    
Year Ended December 31,
    
Nine Months Ended
September 30,
 
    
2018
    
2019
    
2020
    
2020
    
2021
 
     (in thousands)  
Cost of revenue
   $ 7,932      $   74,787      $ 228,339      $ 137,673      $ 273,444  
Sales and marketing
     495        7,641        11,587        8,470        16,008  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total amortization expense related to acquired intangibles
   $   8,427      $ 82,428      $ 239,926      $ 146,143      $ 289,452  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
 
 
(3)
See Note 2 to our consolidated financial statements included elsewhere in this prospectus for an explanation of the method used to compute the historical net income (loss) per share and the number of shares used in the computation of the per share amounts.
Consolidated Balance Sheets Data
 
    
As of September 30, 2021
(1)
 
     (in thousands)  
Cash and cash equivalents
   $ 1,049,617  
Working capital
(2)
     1,056,597  
Total assets
     4,567,760  
Total debt
     1,749,330  
Accumulated deficit
     (1,008,320
Total stockholders’ equity
     2,049,059  
 
(1)
Subsequent to September 30, 2021, we issued incremental loans in an aggregate amount of $1.5 billion. See the section titled “Description of Certain Indebtedness” for additional information.
(2)
Working capital is defined as current assets less current liabilities.
Non-GAAP
Financial Measures
We review a number of operating and financial metrics, including the following financial measures that were not prepared in accordance with GAAP to evaluate our business. We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance.
 
   
Year Ended December 31,
   
Nine Months Ended September 30,
 
   
2018
   
2019
    
2020
   
2020
   
2021
 
    (in thousands, except percentages)  
Net income (loss)
  $ (259,995   $ 119,040      $ (125,934   $ (106,961   $ 3,931  
Adjusted EBITDA
  $     255,618     $     301,197      $     345,495     $     207,594     $     505,490  
Net income (loss) margin
    (53.8 )%      12.0      (8.7 )%      (11.4 )%      0.2
Adjusted EBITDA margin
    52.9     30.3      23.8     22.1     25.3
See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Non-GAAP
Financial Measures” for a description of Adjusted EBITDA and Adjusted EBTIDA margin and a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated in accordance with GAAP.
 
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RISK FACTORS
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes, and our unaudited pro forma condensed combined statement of operations included elsewhere in this prospectus before making a decision to invest in our Class A common stock. Our business, financial condition, results of operations, or prospects could also be adversely affected by risks and uncertainties that are not presently known to us or that we currently believe are not material. If any of the risks actually occur, our business, financial condition, results of operations, and prospects could be adversely affected. In that event, the market price of our Class A common stock could decline, and you could lose all or part of your investment.
Risks Related to Our Business and Industry
We have a limited operating history, especially with respect to our AppLovin Apps, which makes it difficult to evaluate our current business and future performance and the risks we may encounter.
Our limited operating history, especially with respect to our AppLovin Apps, which we launched in 2018, may make it difficult to evaluate our current business and our future performance. We have encountered and will continue to encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, such as the mobile app ecosystem, including our ability to:
 
   
accurately forecast our revenue and plan our operating expenses;
 
   
attract new and retain existing business clients using AppLovin Software Platform and users of our Apps;
 
   
successfully compete with current and future competitors, some of whom are also our clients;
 
   
successfully expand our business in existing markets and enter new markets and geographies;
 
   
successfully execute strategic acquisitions and partnerships;
 
   
develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased usage, as well as the deployment of new features and services;
 
   
comply with existing and new laws and regulations applicable to our business;
 
   
anticipate and respond to macroeconomic changes and changes in the markets in which we operate;
 
   
establish and maintain our brand and reputation;
 
   
adapt to rapidly evolving trends in the ways businesses and consumers interact with technology;
 
   
effectively manage our rapid growth;
 
   
avoid interruptions or disruptions in our AppLovin Core Technologies, Software Platform, or Apps; and
 
   
hire, integrate, and retain key personnel.
Further, because we have limited historical financial data, including limited data regarding the integration of our strategic acquisitions and partnerships, and operate in a rapidly evolving market, any
 
17

financial planning and forecasting, including predictions about our future revenue and expenses, may not be as accurate as they would be if we had a longer operating history or operated in a more predictable market. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations. If we fail to address the risks and uncertainties that we face, including those described elsewhere in this “Risk Factors” section, our business, financial condition, and results of operations could be adversely affected.
Our results of operations are likely to fluctuate from
period-to-period,
which could cause the market price of our Class A common stock to decline.
Our results of operations have fluctuated in the past and are likely to fluctuate significantly from
quarter-to-quarter
and
year-to-year
in the future for a variety of reasons, many of which are outside of our control and difficult to predict. As a result, you should not rely upon our historical results of operations as indicators of future performance. Numerous factors can influence our results of operations, including:
 
   
our ability to maintain and grow our business client and user bases;
 
   
changes to our Core Technologies, Software Platform, Apps, or other offerings, or the development and introduction of new software or development of new mobile apps by our studios or our competitors;
 
   
changes to the policies or practices of companies or governmental agencies that determine access to third-party platforms, such as the Apple App Store and the Google Play Store, or to our Software Platform, Apps, website, or the internet generally;
 
   
changes to the policies or practices of third-party platforms, such as the Apple App Store and the Google Play Store, including with respect to Apple’s Identifier for Advertisers (IDFA), which helps advertisers assess the effectiveness of their advertising efforts, and with respect to transparency regarding data processing;
 
   
the diversification and growth of revenue sources beyond our current Software Platform and Apps;
 
   
the actions of our competitors, both with respect to their own offerings and, to the extent such competitors are also our clients, with respect to their use of our Software Platform;
 
   
costs and expenses related to the strategic acquisitions and partnerships, including costs related to integrating mobile gaming studios or other companies that we acquire, as well as costs and expenses related to the development of our Core Technologies, Software Platform, or Apps;
 
   
our ability to achieve or maintain profitability;
 
   
increases in and timing of operating expenses that we may incur to grow and expand our operations and to remain competitive;
 
   
system failures or outages, or actual or perceived breaches of security or privacy, and the costs associated with preventing, responding to, or remediating any such outages or breaches;
 
   
changes in the legislative or regulatory environment, including with respect to privacy and data protection, or actions by governments or regulators, including fines, orders, or consent decrees;
 
   
charges associated with impairment of any assets on our balance sheet or changes in our expected estimated useful life of property and equipment and intangible assets;
 
18

   
adverse litigation judgments, settlements, or other litigation-related costs and the fees associated with investigating and defending claims;
 
   
changes in the legislative or regulatory environment, such as with respect to privacy and data protection;
 
   
the overall tax rate for our business, which may be affected by the mix of income we earn in the United States and in jurisdictions with comparatively lower tax rates;
 
   
the impact of changes in tax laws or judicial or regulatory interpretations of tax laws, which are recorded in the period such laws are enacted or interpretations are issued and may significantly affect the effective tax rate of that period;
 
   
the application of new or changing financial accounting standards or practices; and
 
   
changes in regional or global business or macroeconomic conditions, including as a result of the
COVID-19
pandemic, which may impact the other factors described above.
In particular, it is difficult to predict if, when, or how quickly newly-launched software may begin to generate revenue or decline in popularity. Further, we cannot be certain if a new App will become popular amongst users and generate revenue. The success of our business depends in part on our ability to develop and enhance our Software Platform and consistently and timely launch new Apps. It is difficult for us to predict with certainty when we will expand our Software Platform suite or launch a new App as we may require longer development schedules or soft launch periods to meet our quality standards and expectations. If our business clients do not adopt our new Software Platform offerings, or develop or further invest in their own competing alternatives, or if we are unable to successfully launch or acquire new Apps or maintain or improve existing Apps, our business and results of operations could be adversely affected. Fluctuations in our results of operations may cause such results to fall below our financial guidance or the expectations of analysts or investors, which could cause the market price of our Class A common stock to decline.
The mobile app ecosystem is intensely competitive. If business clients or users prefer our competitors’ products or services over our own, our business, financial condition, and results of operations could be adversely affected.
We face significant competition in the mobile app ecosystem. We offer a suite of solutions for developers to get their mobile apps discovered and downloaded by the right users, optimize return on marketing spend, and maximize the monetization of their engagement. We collect revenue from business clients for fees paid by mobile app advertisers, including developers, that use our Software Platform and from the sale of advertising inventory of our Apps. Advertisers often engage with several advertising platforms and networks to purchase advertisements on mobile apps and developers often engage with multiple tools to market and monetize their apps. Accordingly, we face significant competition from traditional, online and mobile businesses that provide ad networks and platforms, mobile apps and games, media, and other services for advertisers to reach relevant audiences. We also face competition from providers of developer tools that enable developers to reach their audiences or manage or optimize their advertising campaigns. These companies vary in size and include Facebook, Google, Twitter, and Unity Software as well as various private companies. Several of these companies, including Facebook, Google, and Unity Software, are also our partners and Enterprise Clients. Additionally, our studios build many of our Apps using the development kits offered by Unity Software. Clients who are also competitors may decide to invest in their own offerings rather than continue to use our Software Platform or advertise on our Apps.
Additionally, we also compete with businesses that develop online and mobile games and other mobile apps, which vary in size and include companies such as Activision Blizzard, Tencent, and
 
19

Zynga, as well as other public and private companies. Many of these companies are also our partners and clients. As we expand our global operations and mobile app offerings, we increasingly face competition from high-profile companies with significant online presences that may introduce new or expanded offerings, such as Apple, Facebook, Google, Microsoft, and Snap. In addition, other large companies that to date have not actively focused on mobile apps or gaming may decide to develop mobile apps or gaming offerings, such as Amazon’s recently introduced games platform, or partner with other developers. Some of these current and potential competitors have significantly greater resources that can be used to develop, acquire, or brand additional mobile apps or gaming alternatives, and may have more diversified revenue sources than we do and therefore may be less severely affected by changes in consumer preferences, regulations, or other developments that may impact our business or industry.
Further, as there are relatively low barriers to entry to develop and publish a mobile app, we expect new competitors to enter the market and existing competitors to allocate more resources towards developing and marketing competing games and apps. Because our mobile games are free to play, our Apps compete primarily on the basis of user experience rather than price. The proliferation of apps makes it difficult for us to differentiate ourselves from our competitors and compete for users and the success of our Apps will depend in part on our Software Platform continuing to provide effective marketing and monetization tools.
We also face competition for advertising spending and for the discretionary spending, leisure time, and attention of our users from game platforms such as personal computer and console games, and other leisure time activities, such as television, movies, music, sports, and the internet. In addition,
non-game
applications for mobile devices, such as social media and messaging, television, movies, music, dating, and sports, have become increasingly popular, making the overall mobile app ecosystem highly fragmented and making it more difficult for any mobile app to differentiate itself. To the extent we explore new business opportunities in the mobile app ecosystem or otherwise, we may also compete with established businesses with more experience in such areas. Our future growth depends in part on the overall health of the mobile app ecosystem and in particular, mobile gaming. Increasing competition could result in decreases in our App users, increased user acquisition costs, lower engagement with our Apps, and loss of key personnel, all of which could adversely affect our business, financial condition, or results of operations.
Some of our current and potential competitors may be domiciled in different countries and subject to political, legal, and regulatory regimes that enable them to compete more effectively than us, particularly outside of the United States. Some of our current and potential competitors may have greater resources, more diversified revenue streams, better technological or data analytics capabilities, or stronger brands or competitive positions in certain product segments, geographic regions, or user demographics than we do. If business clients or users prefer our competitors’ products or services over our own, or if our competitors are better able to adapt to changes in the preferences of advertisers or users, regulations, or other developments, our business, financial condition, and results of operations could be adversely affected.
The mobile app ecosystem is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business, financial condition, and results of operations could be adversely affected.
Technology changes rapidly in the mobile app ecosystem. Our future success depends in part on our ability to adapt to trends and to innovate. To attract new business clients and users and increase revenue from our current business clients and users, we will need to enhance and improve our Core Technologies, Software Platform, and Apps. Enhancements of our existing technology and offerings, and new offerings, may not be introduced in a timely or cost-effective manner and may contain errors or defects.
 
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Our business also currently depends in part on the growth and evolution of the internet, especially mobile internet-enabled devices. The number of people using mobile internet-enabled devices has increased rapidly over time, and we expect that this trend will continue. However, the mobile app ecosystem may not grow in the way we anticipate. We must continually anticipate and adapt to emerging technologies to stay competitive. As the technological infrastructure for internet access improves and evolves, consumers will be presented with more opportunities to access apps and play games on a variety of devices and platforms and to experience other leisure activities that may compete with mobile apps. Forecasting the financial impact of these emerging technologies and business models is inherently uncertain and volatile. If we decide to support a new technology or business model in the future, it may require partnering with a new platform, technology, or business partner, which may be on terms that are less favorable to us than those for traditional technologies or business models.
To invest in a new technology or expand our offerings, we must invest financial resources and management attention. We may invest significant resources in a new offering or in a strategic acquisition or partnership, which could prove unsuccessful or prevent us from directing these resources towards other opportunities. We may never recover the often-substantial
up-front
costs of developing and marketing emerging technologies or business models, or recover the opportunity cost of diverting management and financial resources. Further, our competitors may adopt an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours or attract more users than ours.
If, on the other hand, we do not continue to enhance our Core Technologies, Software Platform, or Apps, or do not appropriately allocate our resources amongst opportunities, or we otherwise elect not to pursue new business models that achieve significant commercial success, we may face adverse consequences. For example, we do not currently offer our Apps on all devices or all gaming platforms. If the devices on which our Apps are available decline in popularity or become obsolete faster than anticipated, or if new platforms emerge other than those on which our games are offered, we could experience a decline in revenue and in our number of App users, and we may not achieve the anticipated return on our development efforts. It may take significant time and expenditures to shift product development resources to new technologies, and it may be more difficult to compete against existing products incorporating such technologies. If new technologies render mobile devices obsolete or we are unable to successfully adapt to and appropriately allocate our resources amongst current and new technologies, our business, financial condition, and results of operations could be adversely affected.
The failure to attract new business clients, the loss of clients, or a reduction in spending by these clients could adversely affect our business, financial condition, and results of operations.
A significant portion of our revenue is Business Revenue. We collect Business Revenue from advertisers spending on our Software Platform and Apps. Business Revenue from our Software Platform, which is mostly from AppDiscovery, is generated from our advertisers, typically on a performance-based,
cost-per-install
basis, then shared with our advertising publishers, typically on a cost per impression model. Business Revenue generated from our Apps comes from advertisers that purchase ad inventory from our diverse portfolio of mobile games. As is common in the mobile app ecosystem and in the advertising industry, our business clients do not have long-term advertising commitments with us. Our success depends in part on our ability to satisfy our advertising partners.
Business Revenue could also be impacted by a number of other factors, including:
 
   
our ability to attract and retain business clients;
 
   
our ability to improve the effectiveness and predictability of our advertising and matching algorithms;
 
21

   
our ability to maintain or increase advertiser demand and third-party publisher supply, the quantity, or quality of advertisements shown to users, or our pricing of advertisements;
 
   
our ability to continue to increase user access to and engagement with our Apps;
 
   
mobile app changes or inventory management decisions we may make that change the size, format, frequency, or relative prominence of advertisements displayed on our Apps;
 
   
our ability to recruit, train, and retain personnel to support continued growth of our Software Platform;
 
   
our ability to establish and maintain our brand and reputation;
 
   
loss of market share to our competitors, including if competitors offer lower priced, more integrated, or otherwise more effective products;
 
   
the development and success of technologies designed to block the display of advertisements or block our ad measurement tools, which have in the past impacted and may in the future impact our business, or technologies that make it easier for users to opt out of behavioral targeting;
 
   
the availability, accuracy, utility, and security of analytics and measurement solutions offered by us or third parties that demonstrate the value of our Software Platform to advertisers, developers and publishers, or our ability to further improve such tools;
 
   
government actions or legislative, regulatory, or other legal developments relating to advertising, including developments that may impact our ability to deliver, target, or measure the effectiveness of advertising;
 
   
changes that limit our ability to deliver, target, or measure the effectiveness of advertising, including changes to policies by mobile operating system and third-party platform providers, and the degree to which users opt out of certain types of ad targeting as a result of changes and controls implemented in connection with such policy changes and with the E.U. General Data Protection Regulation (the GDPR), ePrivacy Directive, the California Consumer Privacy Act (the CCPA), and the Children’s Online Privacy Protection Act (the COPPA);
 
   
decisions by business clients to reduce their advertising due to concerns about legal liability or uncertainty regarding their own legal and compliance obligations, or due to negative publicity, regardless of its accuracy, involving us, our user data practices, advertising metrics or tools, our Software Platform or Apps, or other companies in our industry; and
 
   
the impact of macroeconomic conditions, including the impact of the
COVID-19
pandemic and responses thereto, and seasonality, whether in the advertising industry in general, or among specific types of advertisers or within particular geographies.
From time to time, certain of these factors have adversely affected our revenue to varying degrees. The occurrence of any of these or other factors in the future could result in a reduction in demand for our Software Platform and use of our Apps, which may reduce the prices we receive for our advertisements or cause business clients to stop advertising with us altogether, either of which would adversely affect our business and results of operations. The failure to attract new business clients, loss of business clients, or reduction in spending by business clients could adversely affect our business, financial condition, and results of operations.
If we are unable to launch or acquire new Apps and successfully monetize them, or continue to improve the experience and monetization of our existing Apps, our business, financial condition, and results of operations could be adversely affected.
Our business depends in part on launching or acquiring, and continuing to service, mobile apps that users will download and spend time and money using. We have devoted and we expect to
 
22

continue to devote substantial resources to the research, development, analytics, and marketing of our Apps. Our development and marketing efforts are focused on improving the experience of our existing Apps, developing new Apps, and successfully monetizing our Apps. Our Apps generate revenue primarily through the sale of advertising, a substantial portion of which comes from other mobile gaming clients, and
in-app
purchases (IAPs). For Apps distributed through third-party platforms, we are required to share a portion of the proceeds from
in-game
sales with the platform providers, which share may be subject to changes or increases over time. In order to achieve and maintain our profitability, we need to generate sufficient revenue from our existing and new Apps to offset our ongoing development, marketing, and other operating expenses.
Successfully monetizing our Apps is difficult and requires that we deliver user experiences that a sufficient number of users will pay for through IAPs or we are able to otherwise sufficiently monetize our Apps, including by serving
in-app
advertising. The success of our Apps depends in part on unpredictable and volatile factors beyond our control including user preferences, competing apps, new third-party platforms, and the availability of other entertainment experiences. If our Apps do not meet user expectations or if they are not brought to market in a timely and effective manner, our business and results of operations could be adversely affected.
In addition, our ability to successfully launch or acquire Apps and their ability to achieve commercial success will depend in part on our ability to:
 
   
effectively market our Apps to existing and new users;
 
   
achieve a positive return on investment from our marketing and user acquisition costs or achieve organic user growth;
 
   
adapt to changing trends, user preferences, new technologies, and new feature sets for mobile and other devices, including determining whether to invest in development for any new technologies, and achieve a positive return on the costs associated with such adaptation;
 
   
continue to adapt mobile app feature sets for an increasingly diverse set of mobile devices, including various operating systems and specifications, limited bandwidth, and varying processing power and screen sizes;
 
   
achieve and maintain successful user engagement and effectively monetize our Apps;
 
   
develop mobile games that can build upon or become franchise games and expand and enhance our mobile games after their initial releases;
 
   
develop Apps other than mobile games;
 
   
identify and execute strategic acquisitions and partnerships;
 
   
attract advertisers to advertise on our Apps;
 
   
partner with third-party platforms and obtain featuring opportunities;
 
   
compete successfully against a large and growing number of competitors;
 
   
accurately forecast the timing and expense of our operations, including mobile app and feature development, marketing, and user acquisition;
 
   
minimize and quickly resolve bugs or outages;
 
   
acquire, or invest in, and successfully integrate high quality mobile app companies or technologies; and
 
   
retain and motivate talented and experienced developers and other key personnel from such acquisitions and investments.
 
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These and other uncertainties make it difficult to know whether we will succeed in continuing to develop and launch new Apps. Even if successful, certain genres of mobile apps, such as casual games, may have a relatively short lifespan. Further, as our Apps expand into additional genres of mobile games or additional categories of mobile apps, we will face risks as well as market, legal and regulatory challenges specific to those genres or categories. For example, in
mid-core
games, there is typically a higher upfront investment prior to the launch of a game compared to casual games, which means publishing a new game in that genre will expose us to greater risks as our financial condition and results of operations will be more significantly adversely affected to the extent such a game does not become popular and commercially successful. If we are not successful in launching new mobile games or expanding into other genres of mobile games or categories of mobile apps, our business, financial condition, and results of operations could be adversely affected.
If we fail to retain existing users or add new users cost-effectively, or if our users decrease their level of engagement with Apps, our business, financial condition, and results of operations could be adversely affected.
The size of our user base and the level of user engagement with our Apps are critical to our success. Our results of operations have been and will continue to be significantly determined by our success in acquiring and engaging App users. We expect that the number of our App users may fluctuate or decline in one or more markets from time to time, particularly in markets where we have achieved higher penetration rates. In addition, if people do not perceive our Apps as useful or entertaining, we may not be able to attract or retain users or otherwise maintain or increase the frequency and duration of their engagement, which could harm our revenue. A number of mobile apps that achieved early popularity have since seen their user bases or user engagement levels decline. There is no guarantee that we will not experience a similar erosion of our App users or user engagement levels. Our user engagement patterns have changed over time, and user engagement can be difficult to measure, particularly as we introduce new and different Apps. Any number of factors can adversely affect user growth and engagement, including if:
 
   
users increasingly engage with mobile apps offered by competitors or mobile apps in categories other than those of our Apps;
 
   
we fail to introduce new Apps or features that users find engaging or that achieve a high level of market acceptance or we introduce new Apps, or make changes to existing Apps that are not favorably received;
 
   
users feel that their experience is diminished as a result of the decisions we make with respect to the frequency, prominence, format, size, and quality of advertisements that we display;
 
   
users have difficulty installing, updating, or otherwise accessing our Apps as a result of actions by us or third parties;
 
   
we are unable to continue to develop Apps that work with a variety of mobile operating systems and networks; and
 
   
questions about the quality of our Apps, our data practices or concerns related to privacy and sharing of personal information and other user data, safety, security, or other factors.
Additionally, we expect it will become increasingly difficult and more expensive for us to acquire users for our Apps for a variety of reasons, including the increasingly competitive nature of the mobile app ecosystem and the significant amount of time and attention users are dedicating to competing entertainment options. Further, we believe that changes that Apple has implemented during the last several years to its platform, particularly the removal of the Top Grossing rankings and decreasing the prominence of the Top Free rankings, may adversely affect the number of organic downloads of our
 
24

Apps. If our competitors increase their user acquisition spending, we could experience higher costs per an install for our Apps, which would adversely affect our revenue and margins. Furthermore, our spending on user acquisition is based on certain assumptions about their projected behavior, particularly for new Apps for which we do not have similar Apps in our portfolio to aid us in our modeling efforts. If we are unable to grow our user base and increase our user engagement levels, or unable to do so cost effectively, our business, financial condition, and results of operations could be adversely affected.
We have experienced significant growth through strategic acquisitions and partnerships, and we face risks related to the integration of such acquisitions and the management of such growth.
As part of our growth strategy, we have frequently acquired companies, businesses, personnel, and technologies in the past, and we intend to continue to evaluate and pursue strategic acquisitions and partnerships. For example, from the beginning of 2018 through September 30, 2021, we have invested over $2.5 billion across more than 26 strategic acquisitions and partnerships, including for the acquisition of PeopleFun, Inc. in the first quarter of 2018, MAX Advertising Systems, Inc. in the third quarter of 2018, SafeDK Mobile Ltd. in July 2019, Machine Zone, Inc. (Machine Zone) in May 2020, and adjust GmbH (Adjust) in April 2021. Each of these acquisitions requires unique approaches to integration due to, among other reasons, the structure of the acquisitions, the size, locations, and cultural differences among their teams and ours, and has required, and will continue to require, attention from our management team. As we continue to grow, the size of our acquisitions and investments may increase. For instance, our acquisitions of Machine Zone and Adjust were our largest acquisitions to date. In addition to the larger purchase prices associated with such acquisitions and investments, larger acquisitions and investments may also require additional management resources to integrate more significant and often more complex businesses into our company. We will continue to explore and evaluate additional acquisitions, some of which may be the same size or even larger in scale and investment than the Machine Zone and Adjust acquisitions.
Our future success depends in part on our ability to integrate these acquisitions and manage these businesses, partnerships, and transactions effectively. If we are unable to obtain the anticipated benefits or synergies of such acquisitions, or we encounter difficulties integrating acquired businesses with ours, our business, financial condition, and results of operations could be adversely affected.
Challenges and risks from such strategic acquisitions and partnerships include:
 
   
diversion of our management’s attention in the acquisition and integration process, including oversight over acquired businesses which continue their operations under contingent consideration provisions in acquisition agreements;
 
   
declining employee morale and retention issues resulting from changes in compensation, or changes in management, reporting relationships, or future performance;
 
   
the need to integrate the operations, systems, technologies, products, and personnel of each acquired company, the inefficiencies and lack of control that may result if such integration is delayed or not implemented, and unforeseen difficulties and expenditures that may arise in connection with integration;
 
   
the need to implement internal controls, procedures, and policies appropriate for a larger, U.S.-based public company at companies that prior to acquisition may not have as robust controls, procedures, and policies, in particular, with respect to the effectiveness of internal controls, cyber and information security practices and incident response plans, compliance with privacy and other regulations protecting the rights of clients and users, and compliance with U.S.-based economic policies and sanctions which may not have previously been applicable to the acquired company’s operations;
 
25

   
the difficulty in accurately forecasting and accounting for the financial impact of an acquisition transaction, including accounting charges, write-offs of deferred revenue under purchase accounting, and integrating and reporting results for acquired companies that have not historically followed generally accepted accounting principles in the United States (GAAP);
 
   
the implementation of restructuring actions and cost reduction initiatives to streamline operations and improve cost efficiencies;
 
   
the fact that we may be required to pay contingent consideration in excess of the initial fair value, and contingent consideration may become payable at a time when we do not have sufficient cash available to pay such consideration;
 
   
in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries as well as tax risks that may arise from the acquisition;
 
   
increasing legal, regulatory, and compliance exposure, and the additional costs related to mitigate each of those, as a result of adding new offices, employees and other service providers, benefit plans, equity, job types, and lines of business globally; and
 
   
liability for activities of the acquired company before the acquisition, including intellectual property, commercial, and other litigation claims or disputes, cyber and information security vulnerabilities, violations of laws, rules and regulations, including with respect to employee classification, tax liabilities, and other known and unknown liabilities.
If we are unable to successfully integrate and manage our acquisitions and strategic partnerships, we may not realize the expected benefits of such transactions or become exposed to additional liabilities, and our business, financial condition, and results of operations could be adversely affected.
We plan to continue to expand and diversify our operations through strategic acquisitions and partnerships. We face a number of risks related to these transactions.
We plan to continue to expand and diversify our operations with additional strategic acquisitions or partnerships, strategic collaborations, joint ventures, or licensing arrangements. As we continue to grow, these transactions may be larger and require significant investments, such as our acquisitions of Machine Zone and Adjust and our pending acquisition of MoPub. We may be unable to identify or complete prospective acquisitions or partnerships for many reasons, including our ability to identify suitable targets, increasing competition from other potential acquirers, the effects of consolidation in our industries, potentially high valuations of acquisition candidates, and the availability of financing to complete larger acquisitions. Even if we do complete any such transactions, we may incur significant costs, such as professional service fees. In addition, applicable antitrust laws and other regulations may limit our ability to acquire targets, particularly larger targets, or force us to divest an acquired business. If we are unable to identify suitable targets or complete acquisitions, our growth prospects could be adversely affected, and we may not be able to realize sufficient scale and technological advantages to compete effectively in all markets.
Further, completing larger acquisitions or other strategic transactions is significantly riskier in that such transactions require additional consideration and management attention to complete, and could introduce additional exposure to regulatory and compliance risk. To complete these transactions, we may need to spend large amounts of cash, which may not be available to us on acceptable terms, if at all, or issue equity or equity-linked consideration, which may dilute our current stockholders. For example, in connection with our acquisition of Adjust in April 2021, we issued convertible securities that converted into an aggregate of 6,320,688 shares of our Class A common stock. Further, we generally devote more time and resources towards performing diligence on larger transactions and may be
 
26

required to devote more resources towards regulatory requirements in connection with such transactions. To the extent that we do not perform sufficient diligence on a larger acquisition or such a transaction does not generate the expected benefits, our business, financial condition, and results of operations will be harmed, and to a greater extent than would occur with a smaller transaction.
Absent such strategic transactions, we would need to undertake additional development or commercialization activities at our own expense. If we elect to fund and undertake such additional efforts on our own, we may need to obtain additional expertise and additional capital, which may not be available to our company on acceptable terms, if at all. If we are unable to do any of the foregoing, we may not be able to develop our Core Technologies, Software Platform, and Apps effectively or achieve our expected product roadmap on a timely basis, which could adversely affect our business, financial condition, and results of operations.
The benefits of a strategic acquisition or partnership may also take considerable time to develop, and we cannot be certain that any particular strategic acquisition or partnership will produce the intended benefits. Further, acquisitions could result in potential dilutive issuances of equity securities, use of significant cash balances or incurrence of debt (and increased interest expense), contingent liabilities or amortization expenses related to intangible assets, or write-offs of goodwill and intangible assets. If we are unable to identify and complete strategic acquisitions or partnerships, our business, financial condition, and results of operations could be adversely affected.
Our strategic acquisitions and partnerships may expose us to tax risks.
From time to time, we have acquired and may acquire companies, assets, businesses, and technologies and we have entered into and may enter into other strategic partnerships and transactions. We face a variety of tax risks related to such transactions, including that we may be required to make tax withholdings in various jurisdictions in connection with such transactions or as part of our continuing operations following a transaction, and that the companies or businesses we acquire may cause us to alter our international tax structure or otherwise create more complexity with respect to tax matters. Additionally, while we typically include indemnification provisions in our definitive agreements related to strategic acquisitions and partnerships, these indemnification provisions may be insufficient in the event that tax liabilities are greater than expected or in areas that are not fully covered by indemnification. If we are unable to adequately predict and address such tax issues as they arise, our business, financial condition, and results of operations could be adversely affected.
We have entered into strategic partnerships with mobile gaming studios, and a failure to maintain such relationships may harm our ability to launch new Apps as well as our brand and reputation.
From time to time, we have entered into strategic partnerships with mobile gaming studios (our Partner Studios). We have historically allowed these Partner Studios to continue their operations with a degree of autonomy. In certain of these transactions, we have bought games from such Partner Studios and entered into development agreements whereby such Partner Studios provide us support in developing and improving games and grant us a right of first refusal with respect to future games. These agreements typically have a fixed term, after which our Partner Studios may choose not to continue working with us. Any deterioration in our relationship with these Partner Studios may harm our ability to monetize the games we purchase and launch future mobile games developed by these Partner Studios and may lead to such Partner Studios choosing not to renew their partnerships with us. Further, if a Partner Studio becomes dissatisfied with us, our brand and reputation may be harmed and we may have more difficulty entering into similar partnerships in the future. Additionally, our international Partner Studios may be located in areas with less certain legal and regulatory regimes or
 
27

more potential risks, which may increase our costs to maintain such strategic partnership. If we are unable to maintain any of these partnerships, we may be required to invest significant resources in expanding our other studios or entering into agreements with additional mobile gaming studios in order to continue producing the same volume and quality of Apps, and our business, financial condition, and results of operations could be adversely affected.
We rely on third-party platforms to distribute our Apps and collect revenue, and if our ability to do so is harmed, or such third-party platforms change their policies in such a way that restricts our business, increases our expenses, or limits the information we derive from our Apps, our business, financial condition, and results of operations could be adversely affected.
The mobile app ecosystem depends in part on a relatively small number of third-party distribution platforms, such as the Apple App Store, the Google Play Store, and Facebook, some of which are direct competitors. We derive significant revenue from the distribution of our Apps through these third-party platforms and almost all of our IAPs are made through the payment processing systems of these third-party platforms. We are subject to the standard policies and terms of service of such third-party platforms, which generally govern the promotion, distribution, content, and operation of applications on such platforms. Each platform provider has broad discretion to change and interpret its terms of service and other policies with respect to us and other mobile app companies, and those changes may be unfavorable to us. A platform provider may also change its fee structure, add fees associated with access to and use of its platform, alter how mobile apps are labeled or are able to advertise on its platform, change how the personal information of its users is made available to developers on its platform, limit the use of personal information for advertising purposes, restrict how users can share information on its platform or across platforms, or significantly increase the level of compliance or requirements necessary to use its platform. For example, in June 2020, Apple announced a plan to overhaul IDFA as part of a new proposed application tracking transparency framework that, among other things, would require
opt-in
consent for certain types of tracking. This transparency framework, which began being rolled out in late April 2021, has had a limited impact and may in the future have an impact on the effectiveness of our advertising practices and/or our ability to efficiently generate revenue for our Apps. We rely in part on IDFA to provide us with data that helps our Software Platform better market and monetize Apps. The proposed IDFA and transparency changes may require us to engage in significant changes to our data collection practices, which may require our expenditure of substantial costs and resources, and to the extent we are unable to utilize IDFA or a similar offering, or if the transparency changes and any related
opt-in
or other requirements result in decreases in the availability or utility of data relating to Apps, our Software Platform may not be as effective, we may not be able to continue to efficiently generate revenue for our Apps, and our revenue and results of operations may be harmed. Additionally, Apple implemented new requirements for consumer disclosures regarding privacy and data processing practices in December 2020, which has resulted in increased compliance requirements and could result in decreased usage of our Apps. These or any similar changes to the policies of Apple or Google may materially and adversely affect our business, financial condition, and results of operations.
If we violate, or a distribution platform provider believes we have violated, a distribution platform’s terms of service, or if there is any change or deterioration in our relationship with such distribution provider, that platform provider could limit or discontinue our access to its platform. For example, in August 2020, Apple and Google removed a mobile game developed by one of our competitors from their platforms for violating their standard policies and terms of service. If one of our distribution platform partners were to limit or discontinue the distribution of our Apps on their platform, it could adversely affect our business, financial condition, and results of operations.
We also rely on the continued popularity, user adoption, and functionality of third-party platforms. In the past, some of these platform providers have been unavailable for short periods of time or
 
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experienced issues with their
in-app
purchasing functionality. In addition, third-party platforms also impose certain file size limitations, which may limit the ability of users to download some of our larger Apps in
over-the-air
updates. Aside from these
over-the-air
file size limitations, a larger game file size could cause users to delete our mobile games once the file size grows beyond the capacity of their devices’ storage limitations or could reduce the number of downloads of these mobile games.
If issues arise with third-party platforms that impact the visibility or availability of our Apps, our users’ ability to access our Apps or our ability to monetize our Apps, or otherwise impact the design or effectiveness of our Software Platform, our business, financial condition, and results of operations could be adversely affected.
Our revenue has been concentrated in various ways and the loss of, or a significant reduction in, any such revenue source, or our failure to successfully expand and diversify our revenue sources could adversely affect our business, financial condition, and results of operations.
We have historically experienced revenue concentration with respect to certain Apps as well as other facets of our business. Our future success depends, in part, on launching or acquiring and successfully monetizing additional Apps and on establishing and maintaining successful relationships with a diverse set of business clients. While our Apps consist of over 350 mobile games, currently a limited number of those are responsible for a significant portion of our revenue. In the nine months ended September 30, 2021, three games, Project Makeover, Matchington Mansion, and Wordscapes, collectively represented approximately 31% of our revenue. The loss or failure to successfully monetize one of these Apps could have a significant impact on our results of operations. Similarly, our future success depends, in part, on the ability of our Owned Studios and Partner Studios to launch and monetize additional mobile games and other mobile apps, as well as, on our ability to successfully acquire and monetize additional mobile games and other mobile apps, and these Apps may not successfully diversify our revenue concentration. If we are unable to successfully launch or acquire new Apps, our reliance on a limited number of Apps may increase. Additionally, certain genres of games typically rely on only a small portion of their total users for a significant amount of their revenue, and as we expand our number of Apps in these genres, such as
mid-core,
we may experience these effects and need to attract, engage, and increase the spending levels of these particular users to achieve success.
More generally, we face concentration risk in that our Software Platform and Apps operate in the mobile app ecosystem and specifically mobile gaming. As such, our business depends, in part, on the continued health and growth of these app ecosystems. Further, a significant amount of our total revenue is derived through a limited number of third-party distribution platforms, such as the Apple App Store, the Google Play Store, and Facebook. Because Facebook and Google are also significant partners of Adjust, a deterioration in our or Adjust’s relationship with such companies would have a greater impact on our business, financial condition, and results of operations. If any of these concentrated portions of our revenue are harmed or are lost, our business, financial condition, and results of operations could be adversely affected.
We have experienced recent rapid growth, which may not be indicative of our future growth. We may be unable to effectively manage the growth of our business, which could adversely affect our business, financial condition, and results of operations.
We have experienced rapid growth in the scale, scope, and complexity of our business. For example, while we only launched our Apps in 2018, today, our Apps consist of a globally diversified portfolio of over 350
free-to-play
mobile games across five genres, run by eighteen studios. Our growth in any prior period should not be relied upon as an indication of our future performance, as we may not be able to sustain our growth rate in the future. Even if our revenue continues to increase, we expect
 
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that our revenue growth rate may decline in the future as a result of a variety of factors, including because of more difficult comparisons to prior periods and the saturation of the market. The overall growth of our revenue depends in part on our ability to execute on our growth strategies.
Additionally, the growth and expansion of our business has placed and continues to place a significant strain on our management, operations, financial infrastructure, and corporate culture. Our future success depends in part on our ability to manage this expanded business and to continue to grow both our Software Platform and Apps. If not managed effectively, this growth could result in the over-extension of our management systems and information technology systems and our internal controls and procedures may not be adequate to support this growth. Failure to adequately manage our growth in any of these ways may cause damage to our brand and reputation and adversely affect our business, financial condition, and results of operations.
Our future growth may involve expansion into new business opportunities, and any efforts to do so that are unsuccessful or are not cost-effective could adversely affect our business, financial condition, and results of operations.
In the past, we have grown by expanding our offerings into new business opportunities and we expect to continue to do so. We have dedicated resources to expanding into adjacent business opportunities in which large competitors have an established presence, as was the case with our Apps. Additionally, our future growth may include expansion into additional genres of mobile games, other mobile app sectors, or other opportunities which may require significant investment in order to launch and which may not be prove successful. Further, any such expansion may subject us to new or additional laws and regulations, compliance with which may be burdensome and costly. Our future growth depends in part on our ability to correctly identify areas of investment and to cost-effectively execute on our plans. We have in the past and may in the future expend significant resources in connection with strategic acquisitions and partnerships to expand into new business opportunities. Even if successful, the growth of any new business opportunity could create significant challenges for our management and operational resources and could require considerable investment. The deployment of significant resources towards a new opportunity that proves unsuccessful, or our inability to choose the correct investment opportunities for our future, could adversely affect our business, financial condition, and results of operations.
Our international operations are subject to increased challenges and risks.
We expect to continue to expand our international operations in the future by opening new offices, entering into strategic partnerships with new international game studios, acquiring companies that may have international operations, and providing our Apps in additional countries and languages. For example, our studios that we own (Owned Studios) and others that we partner with (Partner Studios) are located throughout the world, including in areas with less certain legal and regulatory regimes or more potential risks, such as China and Vietnam. In particular, we face uncertainties relating to our business in China. We maintain subsidiaries located in China, which include a small portion of our workforce (less than 5% of our total employees as of September 30, 2021). In addition, we currently work with Partner Studios in China. For the nine months ended September 30, 2021, less than 30% of our total research and development expenses were spent with our Partner Studios in China. Due to the nature of the Partner Studios relationships, this research and development spending could be shifted to Partner Studios located in other jurisdictions over time if necessary or desired. Laws and regulations in China may not be as protective as in other jurisdictions, and specifically, we face additional risks in China due to the limited historical recognition and enforcement of intellectual property rights. Expanding our international operations may subject us to risks associated with:
 
   
recruiting and retaining talented and capable management and employees in foreign countries;
 
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the diversion of senior management attention;
 
   
challenges caused by distance, language, and cultural differences;
 
   
developing and customizing Software Platform and Apps that appeal to the tastes and preferences of users in international markets;
 
   
the inability to offer certain Software Platform or Apps in certain foreign countries;
 
   
competition from local mobile app developers with intellectual property rights and significant market share in those markets and with a better understanding of user preferences;
 
   
utilizing, protecting, defending, and enforcing our intellectual property rights;
 
   
negotiating agreements with local distribution platforms that are sufficiently economically beneficial to us and protective of our rights;
 
   
the inability to extend proprietary rights in our brand, content, or technology into new jurisdictions;
 
   
implementing alternative payment methods for features and virtual goods in a manner that complies with local laws and practices and protects us from fraud;
 
   
compliance with applicable foreign laws and regulations, including anti-bribery laws, privacy laws, and laws relating to content and consumer protection (for example, the United Kingdom’s Office of Fair Trading’s 2014 principles relating to IAPs in
free-to-play
games that are directed toward children 16 and under);
 
   
credit risk and higher levels of payment fraud;
 
   
currency exchange rate fluctuations;
 
   
protectionist laws and business practices that favor local businesses in certain countries;
 
   
double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws in the United States or the foreign jurisdictions in which we operate;
 
   
political, economic, and social instability;
 
   
public health crises, such as the
COVID-19
pandemic, which can result in varying impacts to our employees, clients, users, advertisers, app developers, and business partners internationally;
 
   
higher costs associated with doing business internationally, including costs related to local advisors;
 
   
export or import regulations; and
 
   
trade and tariff restrictions.
Our ability to successfully gain market acceptance in any particular international market is uncertain and, in the past, we have experienced difficulties and have not been successful in all the countries we have entered. If we are unable to continue to expand internationally or manage the complexity of our global operations successfully, our business, financial condition, and results of operations could be adversely affected.
Our business depends in part on our ability to increase
in-app
purchases, manage the economies in our Apps and respond to changes with respect to
in-app
purchases, and any failure to do so could adversely affect our business, financial condition, and results of operations.
Our business and future growth depend in part on our ability to increase the amount of IAPs in our Apps, which requires our studios to effectively design mobile games and other apps that create features and virtual goods for which users will pay. Users make IAPs because of the perceived
in-app
 
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value of virtual goods, which is dependent on the relative ease of obtaining an equivalent good by playing our mobile games. The perceived
in-app
value of these virtual goods can be impacted by various actions that we take in the mobile games including offering discounts for virtual goods, giving away virtual goods in promotions, or providing easier
non-paid
means to secure these goods. Managing virtual economies is difficult and relies on our assumptions and judgement. Further, changes in user preferences, including with respect to how they interact with mobile apps and general views towards IAPs, could decrease levels of spending on IAPs on our Apps and in the mobile app ecosystem generally. If we fail to manage our virtual economies properly or fail to promptly and successfully respond to any disruption in such economies, our reputation may be harmed and our users may be less likely to play our mobile games and to purchase virtual goods from us in the future, which could adversely affect our business, financial condition, and results of operations.
In addition, changes in the policies of Apple, Google, or other third-party platforms, or changes in accounting policies promulgated by the Securities and Exchange Commission (SEC), and national accounting standards bodies affecting software and virtual goods revenue recognition, could further significantly affect the way we report revenue related to IAPs, which could adversely affect our results of operations. Any changes in user, third-party platform, or regulator views towards IAPs, or any inability by us to respond to changing trends with respect to IAPs, could adversely affect our business, financial condition, and results of operations.
We are highly dependent on our
co-founder
and chief executive officer, as well as our senior management team, and our business and growth may be adversely affected if we fail to attract, retain, and motivate key personnel.
Our future success depends in significant part on the continued service of our key management and engineering personnel, including our
co-founder,
CEO, and Chairperson, Adam Foroughi. Our ability to compete and grow depends in part on the efforts and talents of these employees and executives, who are important to our vision, strategic direction, culture, products, and technology. We do not have employment agreements, other than offer letters, with Mr. Foroughi or other members of our senior management team, and we do not maintain
key-man
insurance for members of our senior management team. The loss of Mr. Foroughi or any other member of our senior management team could cause disruption and adversely affect our business, financial condition, or results of operations.
In addition, our ability to execute our strategy depends in part on our continued ability and the continued ability of our Partner Studios to identify, hire, develop, motivate, and retain highly skilled employees, particularly in the competitive fields of game development, product management, engineering, and data science. We believe that our corporate culture has been an important factor in our ability to hire and retain key employees, and if we are unable to maintain our corporate culture as we grow, we may be unable to foster the innovation, creativity, and teamwork we believe we need to support our growth. While we believe we compete favorably, competition for highly skilled employees is intense, particularly in the San Francisco Bay Area, where our headquarters is located. Interviewing, hiring, and integrating new employees has been and will continue to be particularly challenging during the
COVID-19
pandemic. As part of our global remote working plans, throughout the duration of the
COVID-19
pandemic, we will devote increased efforts to maintaining our collaborative culture, including through the use of videoconferencing and other online communication and sharing tools, and to monitoring the health, safety, morale, and productivity of our employees, including new employees, as we evaluate the impacts of the
COVID-19
pandemic on our business and employees. If we are unable to identify, hire, and retain highly skilled employees, our business, financial condition, and results of operations could be adversely affected.
We have historically hired a number of key personnel and added additional team members working on our Apps through strategic acquisitions and partnerships, and as competition within the
 
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mobile app ecosystem for attractive target companies with a skilled employee base persists and increases, we may incur significant expenses and difficulty in continuing this practice. The loss of talented employees with experience in the assets we acquire could result in significant disruptions to our business and the integration of acquired assets and businesses. If we do not succeed in recruiting, retaining, and motivating these key employees, we may not achieve the anticipated results of acquisitions.
Security breaches, improper access to or disclosure of our data or user data, other hacking and phishing attacks on our systems, or other cyber incidents could harm our reputation and adversely affect our business.
The mobile app ecosystem is prone to cyberattacks by third parties seeking unauthorized access to our data or the data of our clients or users or to disrupt our ability to provide service. Our Software Platform, Apps, and other offerings involve the collection, storage, processing, and transmission of a large amount of data, including personal information, and we and our third-party service providers otherwise store and process information, including our confidential and proprietary business information, and personal information and other information relating to our employees and business clients or other third parties. We also store and implement measures designed to secure the source code for our Software Platform and Apps as they are created. Any failure to prevent or mitigate security breaches or incidents impacting our systems or other systems used in our business, or improper access to or disclosure of our data, including source code, or user data, including personal information, content, or payment information from users, or information from business clients or other third parties, that is stored or otherwise processed in our business, could result in the unauthorized loss, modification, disclosure, destruction, or other misuse of such data, or unavailability of data or of our Software Platform, Apps, or other offerings. Any such event, or the perception it has occurred, could adversely affect our business and reputation, damage our operations, result in claims, litigation or regulatory investigations or enforcement actions, fines, penalties, or other liability or obligations, and diminish our competitive position. In particular, a breach or incident, whether physical, electronic, or otherwise, impacting systems on which source code or other sensitive data are stored could lead to loss, disruption, unavailability, or piracy of, or damage to, our offerings, lost or reduced ability to protect our intellectual property, and diminished competitive position.
Computer malware (including ransomware), viruses, social engineering (predominantly spear phishing attacks or credential stuffing), and general hacking have become more prevalent in the mobile app ecosystem. Some of these have occurred on our systems and otherwise in our business in the past, and we expect will continue to occur in the future. We regularly encounter attempts to create false or undesirable user accounts or take other actions for purposes such as spamming or other objectionable ends. Any actual or attempted breaches, incidents, or attacks may cause disruptions or interruptions to our Software Platform, Apps, or other offerings, degrade the user experience, impair, disrupt, or interrupt our internal systems and other systems and networks used in our business, or adversely affect our reputation, business, financial condition, and results of operations. Our efforts to protect our data, user data, and information from clients, partners, and other third parties, and to disable or otherwise respond to undesirable activities on our Software Platform, Apps, or other offerings, may also be unsuccessful due to software bugs or other technical defects, errors, or malfunctions; employee, contractor, vendor, or partner error or malfeasance, including defects or vulnerabilities in information technology systems or offerings; cyberattacks, attacks designed to disrupt systems or facilities, or breaches of physical security of our facilities or technical infrastructure; or other threats that evolve. Additionally, any such breach, incident, attack, malfunction, defect, or vulnerability, or the perception that any of these has occurred, may cause clients or users to lose confidence and trust in our Software Platform or Apps and otherwise harm our reputation and market position.
In addition, some developers or other business partners, such as those that help us measure the effectiveness of advertisements, may receive or store information provided by us or by our users
 
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through mobile or web apps or other means. These third parties may misappropriate our information and engage in unauthorized use of it. If these third parties fail to adopt or adhere to adequate data security practices, or experience a breach of, or other security incident impacting, their networks or systems, our data or our users’ data may be lost, destroyed, or improperly accessed, modified, disclosed, or otherwise misused. In such an event, or if such an event is perceived to have occurred, we may suffer damage to our reputation, may have increased costs arising from the restoration or implementation of additional security measures, and we may face claims, demands, investigations and other proceedings by private parties or governmental actors, and fines, penalties, and other liability or obligations, any of which could adversely affect our business, financial condition, and results of operations. Any theft or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an event could also adversely affect our business, competitive position, and results of operations.
Cyberattacks continue to evolve in sophistication and volume, and inherently may be difficult to detect for long periods of time. Although we have developed systems and processes that are designed to protect our data, user data, and information from our partners; to prevent data loss, disable undesirable accounts and activities on our Software Platform or Apps; and to prevent and detect security breaches; we cannot assure you that such measures will provide comprehensive security, that we will be able to identify breaches or other incidents or to react to them in a timely manner or that our remediation efforts will be successful. We experience cyberattacks and other security incidents of varying degrees from time to time, and we may incur significant costs in investigating, protecting against, litigating, or remediating such incidents. We may face increased risks of cyberattacks and other security incidents during the
COVID-19
pandemic as a result of more employees working remotely, our use of third-party systems designed to enable the transition to a remote workforce introducing security risks and increased cyberattacks, such as phishing attacks by threat actors using the attention placed on the
COVID-19
pandemic as a method for targeting personnel.
Additionally, our Software Platform and other offerings operate in conjunction with, and we are dependent upon, third-party products, services, and components. Our ability to monitor our third-party service providers’ data security is limited, and in any event, attackers may be able to circumvent our third-party service providers’ data security measures. There have been and may continue to be significant attacks on certain third-party providers, and we cannot guarantee that our or our third-party providers’ systems and networks have not been breached or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our systems and networks or the systems and networks of third parties that support us and our platform and service. If there is a security vulnerability, error, or other bug in one of these third-party products, services, and components and if there is a security exploit targeting them, we could face increased costs, claims, liability, and additional or new obligations, reduced revenue, and harm to our reputation or competitive position. We and our service providers may be unable to anticipate these techniques, react, remediate or otherwise address any security vulnerability, breach or other security incident in a timely manner, or implement adequate preventative measures.
In addition to our efforts to mitigate cybersecurity risks, we are making significant investments in privacy, safety, security, and content review efforts to combat misuse of our services and user data by third parties. As a result of these efforts, we anticipate that we will discover incidents of misuse of user data or other undesirable activity by third parties. We may not discover all such incidents or activity, whether as a result of our data limitations, the scale of activity on our Software Platform, challenges related to our personnel working remotely during the
COVID-19
pandemic, the
re-allocation
of resources to other projects, or other factors, and we may be notified of such incidents or activity by users, the media, or other third parties. Such incidents and activities have in the past, and may in the future, include the use or other processing of user data or our systems in a manner inconsistent with our terms, contracts or policies, the existence of false or undesirable user accounts, improper
 
34

advertising practices, activities that threaten people’s safety
on-
or offline or instances of spamming, scraping, data harvesting, or unsecured datasets. We may also be unsuccessful in our efforts to enforce our policies or otherwise remediate or respond to any such incidents effectively or in a timely manner. Any of the foregoing developments, or any reports of them occurring or the perception that any of them has occurred, could adversely affect user trust and engagement, harm our brand and reputation, require us to change our business practices, result in claims, demands, investigations and other proceedings by private parties or governmental actors, and fines, penalties, and other liability or obligations, and adversely affect our business, financial condition, and results of operations.
We are subject to a variety of laws and regulations in the United States and abroad relating to cybersecurity and data protection, a number of which also provide a private right of action. Affected users or government authorities could initiate legal or regulatory actions against us in connection with any actual or perceived security breaches or improper access to or disclosure of data, which has occurred in the past and which could cause us to incur significant expense and liability, distract management and technical personnel, and result in orders or consent decrees forcing us to modify our business practices. Such actual or perceived incidents or our efforts to remediate such incidents may also result in a decline in our active user base or engagement levels. Any of these events could adversely affect our reputation, business, financial condition, or results of operations.
Our insurance coverage may not extend to all types of privacy and data security breaches or other incidents, and it may be insufficient to cover all costs and expenses associated with such incidents. Further, such insurance may not continue to be available to us in the future on economically reasonable terms, or at all, and insurers may deny us coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our reputation, financial condition, or results of operations.
We anticipate increasing our operating expenses in the future, and we may not be able to achieve or maintain our profitability in any given period. If we cannot achieve or maintain our profitability, our business could be adversely affected.
Although we have been profitable on a GAAP basis and had positive cash flow from operations in certain prior periods, we may not always achieve sufficient revenue or manage our expenses in order to achieve positive cash flow from operations or profitability in any given period. Our operating expenses may continue to rise as we implement additional initiatives designed to increase revenue, potentially including: developing our Software Platform and technology stack, expanding our Software Platform, launching Apps, strategic acquisitions and partnerships, business client and user acquisition spending, international expansion, hiring additional employees, and taking other steps to strengthen and grow our company. We are likely to recognize costs associated with these investments earlier than some of the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect. We also anticipate that the costs of acquiring new business clients and mobile app users, and otherwise marketing our Software Platform and Apps, will continue to rise. Further, we may continue to incur significant costs in connection with strategic acquisitions and partnerships, which costs may increase or become more concentrated to the extent we enter into larger transactions. If we are not able to maintain positive cash flow in the long term, we may require additional financing, which may not be available on favorable terms or at all, and which may be dilutive to our stockholders. If we are unable to generate adequate revenue growth and manage our expenses, we may incur significant losses in the future and may not be able to maintain positive cash flow from operations or profitability.
 
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Our Software Platform and Apps, as well as our internal systems, rely on software and hardware that is highly technical, and any errors, bugs, or vulnerabilities in these systems, or failures to address or mitigate technical limitations in our systems, could adversely affect our business, financial condition, and results of operations.
Our Software Platform and Apps, as well as our internal systems, rely on software and hardware that is highly technical and complex. In addition, our Software Platform and Apps, as well as our internal systems, depend in part on the ability of such software and hardware to store, retrieve, process, and manage immense amounts of data. The software and hardware on which we rely has contained, and will in the future contain, errors, bugs, or vulnerabilities and our systems are subject to certain technical limitations that may compromise our ability to meet our objectives. Some errors, bugs, or vulnerabilities inherently may be difficult to detect and may only be discovered after the code has been released for external or internal use. Errors, bugs, vulnerabilities, design defects, or technical limitations within the software and hardware on which we rely have in the past led to, and may in the future lead to, outcomes including a negative experience for clients and users who use our offerings, compromised ability of our offerings to perform in a manner consistent with our terms, contracts, or policies, delayed product or App launches or enhancements, targeting, measurement, or billing errors, compromised ability to protect the data of our users and/or our intellectual property, or reductions in our ability to provide some or all of our services. To the extent such errors, bugs, vulnerabilities, or defects impact our Software Platform or the accuracy of data in any such Software Platform, our clients may become dissatisfied with our offerings, our brand and reputation may be harmed, and we may make operational decisions, such as with respect to our Apps using such Software Platform or any future strategic acquisition, that are based on inaccurate data. Any errors, bugs, vulnerabilities, or defects in our systems or the software and hardware on which we rely, failures to properly address or mitigate the technical limitations in our systems, or associated degradations or interruptions of service or failures to fulfill our commitments to our clients may lead to outcomes including damage to our reputation, increased product engineering expenses, regulatory inquiries, litigation, or liability for fines, damages, or other remedies, any of which could adversely affect our business, financial condition, and results of operations.
Our business depends in part on our ability to maintain and scale our technical infrastructure, and any significant disruption to our Software Platform or Apps could damage our reputation, result in a potential loss of engagement, and adversely affect our business, financial condition, and results of operations.
Our reputation and ability to attract and retain our business clients and users depends in part on the reliable performance of our Software Platform and Apps. We have in the past experienced, and may in the future experience, interruptions in the availability or performance of our offerings from time to time. Our systems may not be adequately designed or may not operate with the reliability and redundancy necessary to avoid performance delays or outages that could be harmful to our business. If our offerings are unavailable when users attempt to access them, or if they do not load as quickly as expected, users may not use our offerings as often in the future, or at all, which could adversely affect our business and results of operations. As we continue to grow, we will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy our needs and the needs of our business clients and users. It is possible that we may fail to continue to effectively scale and grow our technical infrastructure to accommodate these increased demands, which may adversely affect our user engagement and revenue growth. Additionally, we rely in part on third-party data centers and cloud hosting infrastructure. Our business may be subject to interruptions, delays, or failures resulting from natural disasters and other events outside of our control that impact us or these third-party providers. If such an event were to occur, users may be subject to service disruptions or outages and we may not be able to recover our technical infrastructure and user data in a timely manner to restart or provide our services. If we fail to efficiently scale and manage our
 
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infrastructure, or if events disrupt our infrastructure or those of our third-party providers, our business, financial condition, and results of operations could be adversely affected.
The
COVID-19
pandemic and responses thereto across the globe have altered how individuals interact with each other and affected how we and our business partners are operating, and the extent to which this situation will impact our future results of operations remains uncertain.
The ongoing
COVID-19
pandemic and resulting social distancing and
shelter-in-place
orders put in place around the world have caused widespread disruption in global economies, productivity, and financial markets and have altered the way in which we conduct our
day-to-day
business.
The full extent to which the
COVID-19
pandemic and the various responses thereto impact our business, operations, and results of operations will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic, including any potential future waves of the pandemic; governmental, business, and individual actions that have been and continue to be taken in response to the pandemic; the effect on our clients; disruptions or restrictions on our employees’ ability to work and travel; the availability and cost to access the capital markets; and interruptions related to our cloud networking and mobile app infrastructure and that impact our business partners, platform providers, clients, and customer service and support providers. As a result of the
COVID-19
pandemic, we have temporarily closed some of our offices around the world and implemented travel restrictions. While substantially all of our business operations can be performed remotely and we are planning reopening for certain offices, many of our employees are juggling additional work-related and personal challenges. With the general shift to remote work, we are able to tap into candidate pools previously unavailable to us, but candidates have also sought increased flexibility and may have more options available to them. We will continue to actively monitor the issues raised by the
COVID-19
pandemic and may take further actions that alter our business operations, including as may be required by federal, state, local, or foreign authorities or that we determine are in the best interests of our employees, users, business partners, and stockholders.
In addition to the potential direct impacts to our business, the global economy has been, and is likely to continue to be, significantly weakened as a result of the actions taken in response to the
COVID-19
pandemic, and future government intervention remains uncertain. A weakened global economy may negatively impact our business partners as well as our users’
in-app
purchasing decisions and users’ buying decisions across the globe generally, which could adversely affect advertiser activity. We may experience heightened levels of variability in the pricing of advertising both in terms of user acquisition and as it relates to our Software Platform and Apps. If these conditions result in significant decreased pricing of advertising, the revenue we make from our Software Platform and advertisers paying to display advertisements in our Apps could be adversely affected, particularly if the levels of user engagement in our Apps are not sufficient to offset these declines, and we may experience increased pressure on our overall margins. If we are not able to respond to and manage the direct and indirect impact of the
COVID-19
pandemic on our business, then our business, financial condition, and results of operations could be adversely affected.
Our company culture has contributed to our success and if we cannot maintain this culture as we grow, our business could be harmed.
We believe that our company culture has been critical to our success and will be important for our continued growth. We face a number of challenges that may affect our ability to sustain our corporate culture, including: failure to identify, attract, reward, and retain people in leadership positions in our organization who share and further our culture and values; the increasing size and geographic diversity of our workforce; competitive pressures to move in directions that may divert us from our culture and values; the continued challenges of a rapidly-evolving industry; the increasing need to develop
 
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expertise in new areas of business that affect us; a negative perception of our treatment of employees or our response to employee sentiment related to political or social causes or actions of management; and the integration of new personnel and businesses from acquisitions. If we are not able to maintain our culture, we could lose the innovation, passion, and dedication of our team and as a result, our business, financial condition, and results of operations could be adversely affected.
If we do not successfully or cost-effectively invest in, establish, and maintain awareness of the AppLovin brand, our business, financial condition, and results of operations could be adversely affected.
We believe that establishing and maintaining the AppLovin brand is critical to maintaining and creating favorable relationships with, and our ability to attract, new business clients, particularly Enterprise Clients, and key personnel. Increasing awareness of the AppLovin brand will depend largely upon our marketing efforts and our ability to successfully differentiate our Software Platform from the offerings of our competitors. In addition, successfully globalizing and extending our brand requires significant investment and extensive management time. If we fail to maintain and increase brand awareness and recognition of our Software Platform, our business, financial condition, and results of operations could be adversely affected.
We generally do not have long-term agreements with our business clients.
Our business clients are not required to enter into long-term agreements with us and may choose to stop using our Software Platform at any time. For example, our advertising agreements can be executed in as little as one day and can be terminated for convenience on two days’ notice. In order to continue to grow our Software Platform, we must consistently provide offerings that clients see as valuable and choose to use. If we fail to maintain our relationships with our clients, or if the terms of these relationships become less favorable to us, our results of operations would be harmed. Additionally, as certain of our Enterprise Clients are also our competitors, these clients may choose to invest in their own offerings rather than continue to use our Software Platform. Any failure to maintain our relationships with business clients could adversely affect our business, financial condition, and results of operations.
If our Apps do not meet user expectations, or contain objectionable content, our reputation, business, financial condition, and results of operations could be adversely affected.
Expectations regarding the quality, performance, and integrity of our Apps are high. We must continually adapt to changing user preferences including the popularity of various game categories, style of play, and IAP options. Users may be critical of our Apps, business models, or business practices for a wide variety of reasons, including perceptions about gameplay, fairness, game content, features, or services. Independent industry analysts may publish reviews of our Apps from time to time, as well as those of our competitors, and perception of our Apps in the marketplace may be significantly influenced by these reviews. We have no control over what users or these industry analysts report. If users and industry analysts negatively respond to our Apps or changes that we make to our Apps, or provide negative reviews of our Apps, our reputation, business, financial condition, and results of operations could be adversely affected.
Further, despite reasonable precautions, some users may be offended by certain mobile app content, advertisements displayed in our Apps or by the treatment of other users. For example, if users believe that an advertisement displayed in an App contains objectionable content, we could experience damage to our brand and reputation and users could refuse to play such game and pressure platform providers to remove the App from their platforms. While such content may violate our terms and we may subsequently remove it, our brand and reputation may nonetheless be harmed and our clients
 
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may become dissatisfied with our services. Furthermore, steps that we may take in response to such instances, such as temporarily or permanently shutting off access of a user to our Apps, could adversely affect our business and results of operations. Any failure to meet user expectations or provide our Apps without objectionable content could adversely affect our reputation, business, financial condition, and results of operations.
The proliferation of “cheating” programs and scam offers that seek to exploit our mobile games and users may adversely affect game-playing experiences and lead users to stop playing our mobile games. Our failure to maintain a customer support ecosystem may enhance these risks.
Our users rely on our customer support organization to resolve any issues relating to our mobile games. Customer support is important for satisfying user expectations regarding the quality, performance, and integrity of our mobile games. We currently have limited customer support operations, which we recently acquired through Machine Zone. If we do not effectively train, supplement, and manage our customer support organization to assist our users, and if that support organization does not succeed in helping users quickly resolve issues or provide effective ongoing support, we could experience decreased user engagement and harm to our reputation with potential new users.
Additionally, unrelated third parties have developed, and may continue to develop, “cheating” programs that enable users to exploit vulnerabilities in our mobile games, play them in an automated way, collude to alter the intended game play, or obtain unfair advantages over other users who do play fairly. These programs harm the experience of users who play fairly and may disrupt the virtual economies of our mobile games and reduce the demand for certain IAPs. In addition, unrelated third parties have attempted to scam our users with fake offers for virtual goods or other game benefits. These unauthorized or fraudulent transactions are usually arranged on third-party websites and the virtual goods offered may have been obtained through unauthorized means, such as exploiting vulnerabilities in our mobile games, or may be fraudulent offers. We do not generate any revenue from these transactions. These unauthorized purchases and sales from third-party sellers have in the past and could in the future impede our revenue and profit growth.
There can be no assurance that our customer support and other efforts to detect, prevent, or minimize these unauthorized or fraudulent transactions will be successful, that these actions will not increase over time or that our customer support efforts will be successful in resolving user issues. Any failure to maintain adequate customer support or success of third-party cheating programs or scams may negatively affect game-playing experiences and lead users to stop playing our mobile games, which could adversely affect our business, financial condition, and results of operations.
Our business is subject to economic, market, public health, and geopolitical conditions as well as to natural disasters beyond our control.
Our business is subject to economic, market, public health, and geopolitical conditions, as well as natural disasters beyond our control. Our revenue is driven in part by discretionary consumer spending habits and preferences, and by advertising spending patterns. Historically, consumer purchasing and advertising spending have each declined during economic downturns and periods of uncertainty regarding future economic prospects or when disposable income or consumer lending is lower. General macro-economic conditions, such as a recession or economic slowdown in the United States or internationally, including those resulting from the
COVID-19
pandemic and geopolitical issues, could create uncertainty and adversely affect discretionary consumer spending habits and preferences as well as advertising spending. Uncertain economic conditions may also adversely affect our business clients. As a result, we may be unable to continue to grow in the event of future economic slowdowns. We are particularly susceptible to market conditions and risks associated with the mobile app
 
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ecosystem, which also include the popularity, price, and timing of our Apps, changes in user demographics, the availability and popularity of other forms of entertainment, and critical reviews and public tastes and preferences, which may change rapidly and cannot necessarily be predicted.
Additionally, our principal offices are located in the San Francisco Bay Area, an area known for earthquakes and susceptible to fires, and are thus vulnerable to damage. All of our facilities are also vulnerable to damage from natural or manmade disasters, including power loss, earthquakes, fires, explosions, floods, communications failures, terrorist attacks, contagious disease outbreak (such as the
COVID-19
pandemic), and similar events. If any disaster were to occur, our ability to operate our business at our facilities could be impaired and we could incur significant losses, recovery from which may require substantial time and expense.
Risks Related to Legal and Regulatory Matters
We are subject to laws and regulations concerning privacy, information security, data protection, consumer protection, advertising, tracking, targeting, and protection of minors, and these laws and regulations are continually evolving. Our actual or perceived failure to comply with these laws and regulations could adversely affect our business, financial condition, and results of operations.
We receive, store, and process personal information and other data, including data relating to individuals and households, and we enable our users to share their personal information with each other and with third parties, including within our Apps. There are numerous federal, state, and local laws around the world regarding privacy and the collection, storing, sharing, use, processing, disclosure, deletion, and protection of personal information and other data, including data relating to individuals and households, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules.
Various government and consumer agencies have called for new regulation and changes in industry practices and are continuing to review the need for greater regulation for the collection of information concerning consumer behavior on the internet, including regulation aimed at restricting certain targeted advertising practices. For example, the GDPR, which became effective in May 2018, created new individual privacy rights and imposed worldwide obligations on companies processing personal data of European Union (EU) users, which has created a greater compliance burden for us and other companies with European users, and subjects violators to substantial monetary penalties. The United Kingdom has implemented legislation that substantially implements the GDPR and which also provides for substantial monetary penalties. In June 2021, the European Commission announced a decision of “adequacy” concluding that the United Kingdom ensures an equivalent level of data protection to the GDPR, which provides some relief regarding the legality of continued personal data flows from the European Economic Area to the United Kingdom. Such adequacy decision must, however, be renewed after four years and may be modified or revoked in the interim. We cannot fully predict how United Kingdom data protection laws or regulations may develop in the medium to longer term, nor the effects of divergent laws and guidance regarding how data transfers to and from the United Kingdom will be regulated,
With regard to transfers to the United States of personal data (as such term is used in the GDPR and applicable EU member state legislation) from our employees and European users and other third parties, we have relied upon the
EU-U.S.
and
Swiss-U.S.
Privacy Shield as well as certain standard contractual clauses approved by the EU Commission (the SCCs); however, both the
EU-U.S.
Privacy Shield and the SCCs have been subject to legal challenge, and on July 16, 2020, the Court of Justice of the EU, Europe’s highest court, held in the